It’s no secret that this country is in the middle of some rough economic times. The only certainty in the world economy these days is uncertainty. Company executives are being forced to make some tough decisions — not only to deal with the economic downturn, but also to stay afloat.
Of course companies are watching, and cutting, expenses. But John Flatowicz, CPA, audit shareholder with Briggs & Veselka Co., is advising clients to do more than cut the budget to weather a tumultuous economy.
“Number one,” Flatowicz advises, “focus on your key customers. Your customer service should be at the highest possible levels. Be alert to opportunities; can you gain market share by offering superior service, closer relationships and a willingness to negotiate rates? Are you in a position to acquire or merge with companies who may be offered at a discounted rate?”
Smart Business spoke with Flatowicz about how companies can better cope in uncertain economic conditions.
What should a company do to cope with the current economic climate?
The first steps to take involve strengthening your balance sheet and taking the necessary steps to maintain or improve cash flows. By strengthening the balance sheet, you’ll be able to give your bankers a balance sheet that they can feel more comfortable with and they’ll be better equipped to renew your existing line of credit or extend it, if necessary.
Strengthening your balance sheet could involve reducing inventory levels while maintaining current sales levels via economic order quantities techniques, or keeping on hand only the best gross margin products.
The second step is to maintain or improve cash flows by cutting nonessential expenses. Also, you’ll want to enhance revenues and related gross margins. Reaching out to new and existing customers and being willing to negotiate terms can result in new sources of revenues, even in a down economy.
If you must cut expenses, what’s the best way to do it?
The most effective method is to cut nonessential expenses that don’t have an effect on the ability to generate revenues and cash flows and that don’t result in the loss of employee morale or quality of work. Once nonessential expenses are identified, it should be rather painless to cut or reduce them entirely, while still maintaining your revenue stream and quality of work or product. Every company will have different nonessential expenses, but some to consider include excessive travel, dining, entertainment and outside seminars and conferences.
How is this economy affecting staffing?
You should look at staffing in terms of which people you need to keep to maintain your company’s quality, revenue stream and related cash flows. Those personnel who are critical to maintaining revenues and cash flows should be kept. Noncritical employees can be cut, just like nonessential expenses. Companies should also think about which employees are long-term players and will be able to help the company grow when the economy turns around. You don’t want to lose talented employees by being shortsighted. If you have to reduce salaries to survive, consideration should be given to reducing or freezing salaries versus actual layoffs.
How can you ensure that budgets will remain sufficient and effective?
Budgets are even more critical to follow in tough times. You need to know if expenses are exceeding what you can afford in this economy. To help ensure that budgets are still reasonable, companies should review them monthly and change or update as needed to reflect the realities of reduced sales or critical expenses. If competition requires you to market more to maintain or increase sales, then you should increase your marketing budget while decreasing other budget items. On the other hand, if sales are down significantly, even after heavy marketing, then all purchases and other expenses may have to be budgeted to decrease on a prorate percentage. The budgeting process should never be a stale, once-a-year task. It should always be updated to reflect the current situation, particularly in a tough economy.
How to do you reconcile short-term goals without losing sight of the long-term picture?
The short-term goal of surviving in a tough economy should actually enhance a company’s ability to be more successful in the long run. If you focus on maintaining quality, keeping key people, and reducing nonessential staff and expenses, you’ll maintain revenues, related cash flows and reputations. Then, you’ll be in great shape to really expand when the economy turns around, as it surely will.
Companies that will thrive when the economy recovers are the ones that will focus on their key customers now by providing high levels of customer service. They’ll gain market share by offering superior service, closer relationships and a willingness to negotiate rates to help both existing and new customers.
JOHN FLATOWICZ, CPA, is an audit shareholder with Briggs & Veselka Co. Reach him at (713) 667-9147 or email@example.com.