When do I know if I’m in trouble, financially? It seems like I’m okay, most of my customers are continuing to buy and I’m picking up new accounts here and there. It’s certainly not looking like a boom year, but it’s not total doom and gloom either. There’s a lot of talk of recession out there, and I’m not sure how much I should pay attention to that.”
You’re right. There is a lot of talk of a recession economy out there. For some people a recession could be deadly, and for others it could be business as usual – or nearly usual. And, for some businesses, it could be a time to thrive.
You’re starting out with the right point of view – look inside your business, first. There are some things I’d add to the list of things to check on. In addition to new sales, customer count and payment history, you want to check on cash flow, reserves, debt status and overall profitability. Then look at your customers, and gather similar information. Then look at your marketplace to see how it’s doing.
When trying to figure out the impact of a recession, do an internal check on things first. How well prepared is your business to weather challenging financial times?
Do your sales depend on cash rich, free spending customers? Or, do you have a product or service that sells well when people are pulling in the ropes and they are concerned about being frugal? How likely is your customer group to feel a recession? Remember that not everyone reacts to a recession equally. Some people and businesses have money and continue to spend, while others don’t. Who are you selling to?
Look at sales trends, not just over the last 6 months, but also compared to a year ago. In many businesses the first quarter tends to be slow. I’ve talked to a lot of business owners who are all doom and gloom in March, and celebrating the signs of another great year come July. What’s your business cycle?
Make sure you’re accurate in your assessments of how things are going. If you have data on several years of operation, compare sales and profits this year-to-date with several years, going back as far as 2000, or earlier, if you can. Finding out what cycle your business is in may help you react more appropriately.
If sales are truly down, take a look at what you’re selling. Can you put a spin on it that makes it more valuable to a recessionary economy? For example, if you sell promotional pieces or advertising, switch the pitch from customer retention and awareness building to: Now’s the time to emphasize marketing, to get more than your fair share of the market. ?
If trends are down, and have been for some time, it may not be the recession, it may be your business in general, and the recession is just making you realize it.
If numbers of customers are up, but sales aren’t as big, there may be an opportunity to grow just by focusing in the customers you’ve been adding. Find out what they want and supply it. If numbers of customers are down, it’s time to focus on boosting sales and innovating with your product or service offer. Don’t let the trend continue. Get out there and sell more. If you don’t know how to do that, get some help.
In recessionary times, you want to pay attention to customer payment history. Many folks get caught short. Customers may ask you for extended terms. Or, they may not ask, they may just slow down payments. Again, check on cycles. Is this a client who is always slow in the first quarter? Is this a client who historically has been strong, and is suddenly hitting a weak spot? Or, have they suddenly come to a near breaking point, and you’re about to lose everything they owe you when they go under?
Remember that survival is of the fittest. Knowing who to lend to is a skill and an art. Just ask the banks! Go visit customers who are asking for longer terms. Pull credit reports if receivables get over a certain point. Ask for a bank reference. Find out why your customer is asking you to extend them credit, and be sure you’ll get paid. After all, if you lend in order to do the work, and then don’t get paid, you just worked for free.
Next week we’ll finish this article with a discussion of debt, reserves, overall profitability. We’ll talk about ways to look at customers and methods to analyze the marketplace in general.
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