Navigating Through Turbulent Times

Navigating Through Turbulent Economic Times
Anyone who remembers the recessions of the early 1990s and of 2001 knows what it’s like to go back to the financial fundamentals, to seek any edge to be found in a difficult economic environment. President Obama’s stimulus plan, the American Recovery and Reinvestment Act, may offer some relief, but, at the end of the day, the fate of your business still rests in your hands.
We’ll offer some perspective on the help the current stimulus plan might present and outline a series of tips that can help you manage costs and find additional potential revenue sources.
Help from Uncle Sam
Whether the stimulus plan offers specific help for small business has been debated, but, says Dr. Scott Anderson, Vice President and Senior Economist at Wells Fargo, the $789 billion package, which will largely be allocated over the next three years, will aid the country as a whole.
“The specific allocations can potentially help any number of sectors, including businesses involved in retail, health care, education, energy and other fields,” he says. For example, the plan encompasses $190 billion for infrastructure improvements, including $30 billion to modernize the electric grid and develop new battery technology, $19 billion to physicians and hospitals to upgrade records and processes and $29 billion for roads.
The key impact for small business should be greater access to credit. Specifically, the plan provides $730 million to the Small Business Administration (SBA) and makes changes to the agency’s lending and investment programs so that they can reach more small businesses. The funding includes:
$375 million for temporary fee reductions or eliminations on SBA loans and increased SBA guaranteed shares, up to 90 percent for certain loans;
$255 million for a new loan program to help small businesses meet existing debt payments;
$30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to micro-lenders;
$20 million for technology systems to streamline SBA’s lending and oversight processes; and
$15 million for expanding SBA’s Surety Bond Guarantee program.
And opening credit is what it’s all about, adds Anderson. In addition to the stimulus package, the Federal Reserve recently announced an expanded $200 billion joint Treasury program, called the Term Asset-Backed Securities Loan Facility (TALF). TALF’s low-interest loans should have investors buying AAA-rated securities backed by new consumer and small business loans. The Obama administration also plans to launch a “small-business and community-bank lending initiative,” according to U.S. Treasury Secretary Tim Geithner, which would finance the purchase of highly rated SBA loans, increase the government guarantee for SBA loans and reduce the fees on certain SBA loans, among other things.
Containing Cash Flow, Growing Revenues
While any external help is welcome, it’s what you do internally that will likely make the biggest difference. The following tips may kick-start your thinking around managing costs and even finding potential new revenue streams.
No matter what, you always have to do the math. In general, you’ll always monitor expenses, but it makes sense to look at them in terms of the value they deliver and the ways in which you can modify variable expenses with minimal impact on your business.
Look at your lease—Whether you’re moving into a new space for the first time, evaluating new space or dealing with a lease coming up for renewal, you can always negotiate better terms. “There are basically two categories of terms on which you can negotiate: economic and business terms,” explains Eric Postle, principal at corporate real estate firm Washington Partners. Talk to your landlord about better pass-through costs, penalty and late fee structures and rights to sublet. To learn more, check out “Negotiating a Better Lease,” at AllBusiness.
Consistently review service providers—While certain utilities can’t be negotiated (although electricity and natural gas providers offer “balanced billing” services that give you fixed monthly cost figures), cell phone and Internet service providers may be willing to work, if you contact them. Review your insurance coverages every year; you never know what benefits you might find.
Talk to your vendors and suppliers—Everyone is in the same economic boat here. Find out if you can get more favorable terms (e.g., from 30 to 45 days) or whether you can get discounts for early payment. As a supplier, you might want to consider offering improved terms to valued customers.
Buying “not necessarily new”—Used equipment can save you some serious cash. Depending on what you’re after, there are hundreds of suppliers out there, covering everything from retail “open box” and reconditioned deals, to resellers who do all their own repair work. Office supply retailers may offer open box offers in their stores, while major computer manufacturers offer good deals on their own refurbished machines.
Lease vs. buy—Depending on your equipment needs, leasing offers a wide range of potential benefits, such as lower upfront and monthly costs, better cash forecasting, consistent upgrades and tax advantages. For more information, check out “Business Equipment: Buying vs. Leasing,” at legal site Nolo.com.
Restructure your debt—One way to fend off a possible cash flow crunch is to restructure outstanding debt to spread your payments out or consolidate debt into a single, lower payment. It’s not a solution for every company, but it may be worth exploring.
Expanding revenue means more than ramping up sales. There are several avenues to a better bottom line. Here are a few ideas:
Plan your way to better cash flow—If you’re buying a car, getting new equipment, thinking of implementing new processes in your business or even making energy efficiency changes, your Federal and state government may be able to help. That assistance chiefly takes the form of tax credits—dollar-for-dollar deductions on your taxes. Talk to your accountant or tax professional about how you can take advantage of tax credits for your business.
Don’t go it alone—“All small business owners face the dilemma of limited resources—both time and money—and bringing in a partner can help extend them,” notes Darrell Zahorsky, Guide to Small Business Information at information provider About.com. “It also offers a level of accountability to both sides, which makes reaching goals more likely.” The right partnership offers a range of benefits, helping you reach new audiences, markets and industries, giving you capabilities you don’t currently possess, expanding your product or service lines and even offering access to new vendors and suppliers.
Keep existing customers happy—Loyalty programs reward your customers for shopping with you, and are a great way to keep them engaged. Programs like pre-purchase discounts, cash rewards, “one free” after reaching a purchase level and punch cards are simple and easy to implement. The rewards, in terms of increased customer lifetime value, are just as much yours as they are your clients. In her USA Today column “Strategies: Keeping Customers Loyal,” Rhonda Abrams outlines some common program structures and how to institute a program for your business.
Upselling/cross-selling—According to Dana VanDen Heuvel, Director at RSS marketing firm Pheedo, Inc., upselling and cross-selling can take several forms. “You can try to move an existing customer to an upgrade of a product or service they already have the next time they’re in your store, or you can migrate a new customer from an entry-level purchase to a more appropriate, and likely more profitable purchase by seeking to better understand their needs and illustrating that you understand their needs by selling them the right solution,” he explains. In addition, upselling/cross-selling may mean not getting more money from an existing customer, but getting the same money in a guaranteed and regular fashion by selling your product in the form of a service. For example, a drycleaner who sees a customer once every month, who brings in a pile of clothes each time, might suggest that its bi-weekly pickup service may be more convenient for the customer—and, as a result, a more stable stream of regular revenue for the business. In that sense, there may well be ways in which you can build a “subscription model” into your business to ensure a more consistent stream of revenue.
Get more social—Social networking has taken the concept of business networking to a whole new level. During the past five or so years, social networking has taken a giant leap forward, thanks in great part to the web. Network sites like Facebook, LinkedIn, Spoke, the Downtown Women’s Club (DWC) and others mix both social and professional elements to help push business agendas. While each of the sites offers a variety of services at inexpensive costs, the basis of most of the networks is the member profiling they do. It’s what helps in-network members find out about each other, both personally and professionally, and what facilitates member-to-member contact. Why has social networking become so prevalent? It’s a good way to handle the time crunch. According to a recent DWC survey, some 71% of its users say that they use social networking because it’s a more time efficient way to network, and 49% do it because they can multi-task while they’re at it.
There’s no dearth of tactics that can help you work through this difficult economy. Hopefully, the tips above have helped stir your thoughts. Talk to colleagues, customers and vendors; you never know where a good idea will come from.
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