Here we are in a challenging economic environment that spans almost every industry. Every day we are reminded of this with still high unemployment rates, less than hoped for corporate financial results, bankruptcies and foreclosures, low consumer confidence, etc. With this news constantly put before us, I frequently hear from business colleagues that it isn't possible to succeed in this environment. However, the one commonality among all of these is that business owners generally cannot control them in the sense of the larger economy.
Instead of crawling into a cave and hiding, a better alternative is to focus on the things that we can control in our businesses. There are many things we cannot control; some of the larger macroeconomic issues listed above are among them. What then can we control? To name just a few, we can control new product development, marketing, internal costs, operational efficiency, reliance on debt to run businesses and the amount of time and money we invest in growth (i.e., resource allocation).
To illustrate a more positive approach, I provide the following example of one of my clients. Their industry was down about 25% in 2009 and the business was definitely feeling the downturn early in the year. During the 1st quarter, a key competitor went out of business and liquidated. Instead of sitting on their heels and letting the poor economic environment hold them back, the owner and his team sprung into action. Together we were able to quickly put together a financial projection for the business.
Based on the projection, the client decided to hire the competitor's top salesperson, a key customer service rep and a technical expert. We also worked with the client's bank, presented the financial plan, and were able to increase the line of credit to support the several million dollar increase in business. By the end of 2009, instead of being down 25% and having real struggles, the business was up 7% for the year and had increased market share in a very competitive space. Already this year, my client is expanding his warehouse and office space in anticipation of future growth.
The lesson here is that prudent risk even in the face of economic uncertainty can provide the impetus for excellent financial performance. Here are some thoughts that come to mind when I think of ways to be more aggressive in this shaky world.
- Invest in new equipment that will reduce manufacturing cost and increase gross margin. The financial tools to use to help with this decision are a return on investment and discounted cash flow analysis.
- Develop or acquire a new product/service that brings unique value to your market or provides access to a previously untapped market. The financial tools here are similar but in this case, I would also suggest a pro forma P&L.
- Advertise your product, rebuild your website or add the ability for customers to purchase from your website to stimulate new sales. Similar financial tools can help bring facts to this decision.
Let's not allow what we're hearing in the media and from the government cause us to stifle our businesses. There remain a tremendous number of opportunities in every marketplace. Taking advantage of these opportunities now requires a more analytical approach followed by a good plan of execution. A plan is only that, a plan. However, a well thought out plan with good financial projections can lead to a more certain and acceptable outcome.
