Last year marked a major evolution in the psychology of business owners. Nicholas Browning, president and CEO of FirstMerit Bank’s Akron region, has observed his clients’ transition from a “bunker” mentality to aggressively reducing costs to preserve profit margins.
“They’ve gone from hiding to surviving to thriving in a very flat business market,” Browning says. “The successful companies have re-engineered their processes to make their labor cuts sustainable over the long run while still being able to deliver on their value propositions in a thoughtful way rather than having to work people to death in order to do it.”
“In fact, these entities have right-sized their companies for the revenue that exists in the current business environment.”
Smart Business spoke with Browning about how some businesses have adjusted to beat the recession.
How have companies adapted to economic changes?
One of my clients told me that between Thanksgiving and New Year’s of 2008, he was hunkered down. He went home and cried at night. Now he feels like his company is positioned to attack the marketplace — and that’s consistent with many businesses.
There are other strategies that businesses are using, as well. First, they’ve worked hard to reduce inventories so they only have what they need to meet today’s sales demands. However, businesses that were late in the expansion cycle built up their inventories, fearing that they would not have enough on hand when sales came in. Therefore, they found themselves oversupplied.
Since then, these businesses have done a great job of shrinking inventories to fit their current needs. They have become very good at managing their accounts receivable to reduce the receivable collection cycle.
Based on feedback from clients, I don’t believe that they have plans to go back and fatten their inventories. They may spot fill based on minor areas where they feel a little too thin, but they have no intention of being oversupplied again.
How can businesses thrive in a flat environment if revenues aren’t on the horizon?
Businesses should explore ways to cut further. Many companies that successfully reduced their size have also reduced their debt. They freed up cash by bringing inventory levels down, by decreasing the days on hand for receivables, by improving receivable collection, and by paying down their debt. Now, they are in a position where they are lean, mean, and hopefully thinking, ‘How do I go out and attack the marketplace?’
