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ARTICLES:
NEW! Is Now the Right Time to Buy Gumball/Candy Machines for Passive Income?
NEW! Economic Downturns and Bulk Vending
Vending Millionaire? How Much Can I Make?
8 Ways to Pay For Your Vending Machines
Power Tips I Used to Locate 100 Machines in the last Year
Will I Need
Business Insurance?
Use your Home as a
Bank to Pay for Machines
How
Much Time will it take?
Optimum Route
Size
Figuring Your Cost Per Vend for Higher Profits
Quick Ways to Increase Sales, 1
Quick Ways to Increase Sales, 2
What Can I Sell in My Machines?
Hard to Vend Items
5 Things to think about Before Buying Machines
What Type Machines are Best?
What about Vending Locator Services?
Investing Your Tax Refund
Talking to Bankers
The Real Costs of Running a Vending Business
Grow the Person, Grow the Business
Great Business Reading
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Bulk Vending During an Economic Downturn
No one has escaped the influence of the
recent economic downturn. The area of bulk vending is no
exception. This business has often been characterized as
"recession-proof".
I do believe the business has good
resistance to recessions, but it is not IMMUNE. This is a great time
to evaluate our business strategies and shore up any weak areas. I
am reprinting an excellent article by Terry Hill which will help give you
specific concrete ideas of what to do to hedge (protect) your business
from the economic downturn:
How to Successfully
Navigate Your Business through an Economic Downturn
by: Terry H Hill
An economic downturn is a phase of the business cycle in
which the economy as a whole is in decline.This phase basically marks the
end of the period of growth in the business cycle. Economic downturns are
characterized by decreased levels of consumer purchases (especially of
durable goods) and, subsequently, reduced levels of production by
businesses.
While economic downturns are admittedly difficult, and
are formidable obstacles to small businesses that are trying to survive
and grow, an economic downturn can open up opportunities. A well-managed
company can realize the opportunity to gain market share by taking
customers away from their competitors. Resourceful entrepreneurs capture
the available opportunities, from an economic downturn, by developing
alternate methods of doing business that were never implemented during a
prior growth period.
The challenge of successfully navigating your
business through an economic downturn lies in the realignment of your
business with current economic realities. Specifically, you, as the
business owner, need to renew a focus on your core clients/customers,
reduce your operating expenses, conserve cash, and manage more
proactively, rather than reactively, is paramount.
Here are best
practices that will help you to successfully navigate your business
through an economic downturn:
Goals: The
primary goal of any business owner is to survive the current economic
downturn and to develop a leaner, more cost-effective and more efficient
operation. The secondary goal is to grow the business even during this
current economic downturn.
Objectives:
• Conserve cash.
• Protect assets.
• Reduce costs.
•
Improve efficiencies.
• Grow customer base.
Required Action:
• Do not panic…
History shows that economic downturns do not last forever. Remain calm and
act in a rational manner as you refocus your attention on resizing your
company to the current economic conditions.
• Focus on what YOU
can control… Don’t let the media's rhetoric concerning recessions and
economic slowdown deter you from achieving business success. It´s a trap!
Why? Because the condition of the economy is beyond your control.
Surviving economic downturns requires a focus on what you can control,
i.e. your relevant business activities.
• Communicate,
communicate, and communicate! Beware of the pitfall of trying to do too
much on your own. It is a difficult task indeed to survive and to grow
your business solely with your own efforts. Solicit ideas and seek the
help of other people (your employees, suppliers, lenders, customers, and
advisors). Communicate honestly and consistently. Effective two-way
communication is the key.
• Negotiate, negotiate, and negotiate!
The value of a strong negotiation skill set cannot be overstated.
Negotiating better deals and contracts is an absolute must for realigning
and resizing your company to the current economic conditions. The key to
success is not only knowing how to develop a win-win approach in
negotiations with all parties, but also keeping in mind the fact that you
want a favorable outcome for yourself too.
Recommended
Best Practice Activities:
The Nuts and Bolts… The
following list of recommended best practice activities is critical for
your business' survival and for its growth during an economic downturn.
The actual financial health of your particular business, at the outset of
the economic downturn, will dictate the priority and urgency of the
implementation of the following best practice activities.
1.
Diligently monitor your cash flow: Forecast your cash flow monthly to
ensure that expenses and planned expenditures are in line with accounts
receivable. Include cash flow statements into your monthly financial
reporting. Project cash requirements three-to- six months in advance. The
key is to know how to monitor, protect, control, and put cash to work.
2. Carefully convert your inventories: Convert excess, obsolete,
and slow-moving inventory items into cash. Consider returning excess and
slow-moving items back to the suppliers. Close-out or inventory reduction
sales work well to resize your inventory. Also, consider narrowing your
product offerings. Well-timed order placement helps to reduce excess
inventory levels and occasional material shortages. The key is to reduce
the amount of your inventory without losing sales.
3. Timely
collection of your accounts receivable: This asset should be converted to
cash as quickly as possible. Offer prompt payment discounts to encourage
timely payments. Make changes in the terms of sale for slow paying
customers (i.e. changing net 30 day terms to COD). Invoicing is an
important part of your cash flow management. The first rule of invoicing
is to do it as soon as possible after products are shipped and/or after
services are delivered. Place an emphasis on reducing billing errors. Most
customers delay payments because an invoice had errors, and therefore,
will not pay until they receive a corrected copy. Email or fax your
invoices to save on mailing time. Post the payments that you have received
and make deposits more frequently. The key is to develop an efficient
collection system that generates timely payments and one that gives you
advance warning of problems.
4. Re-focus your attention on your
existing clients/customers: Make customer satisfaction your priority. A
regular review of your customers' buying history and frequency of
purchases can reveal some interesting facts about your customers' buying
habits. Consider signing long-term contracts with your core
clients/customers which will add to your security. Offer a discount for
upfront cash payments. The key is to do what it takes to keep your current
customers loyal.
5. Re-negotiate with your suppliers, lenders, and
landlord:
i) Suppliers: Always keep your negotiations on
the level of need, saying that your company has reviewed its cost
structure and has determined that it needs to lower supplier costs. . Tell
the supplier that you value the relationship you have developed, but that
you need to receive a cost reduction immediately. Ask your supplier for a
lower material price, a longer payment cycle, and the elimination of
finance charges. Also, see if you can buy material from them on a
consignment basis. In return for their price concessions, be willing to
agree to a long-term contract. Explore the idea of bartering as a form of
payment.
ii)
Lenders: Everything in business finance is negotiable and your
relationship with a bank is no exception. The first step to successful
renegotiations is to convince your lenders that you can ultimately pay off
the renegotiated loan. You must point out to your lenders why it would be
in their best interest to agree to a new arrangement. Showing them your
business plan and your action plan that includes your cost-savings
initiatives, along with "the how" and "the when" of the implementation of
your plan is the best way to achieve this goal. Explain to them that you
will need their cooperation to insure that you can survive, as well as,
grow your business during the economic downturn. Negotiated items include:
the rate of interest, the required security to cover the loan, and the
beginning date for repayment. A beginning date for repayment could be
immediate, within several months or as long as a year. The key is to
realize that your lender will work with you, but that frequent and
continual communications with them is critical.
iii)
Landlord: Meet with your landlord. Explain your need to have them extend
the term of your lease at a reduced cost. Make sure you have a clause in
the lease agreement that entitles you to have the right to sublet any or
all of the leased space.
6. Re-evaluate your staffing
requirements: This is a very critical area. Salaries/wages are a major
expense of doing business. Therefore, any reduction in the hours worked
through work schedule changes, short-term layoffs or permanent layoffs has
an immediate cost saving benefit. Most companies ramped up hiring new
employees in the good times, only to find that they are currently
overstaffed due to slow sales during the economic downturn. In terms of
down-sizing your staff, be very careful not to reduce your staff to a
level that forces you to skimp on customer service and quality. Consider
the use of part-timers or the current trend of outsourcing certain
functions to independent contractors.
7. Shop for better
insurances rates: Get quotations from other insurance agents for
comparable coverage to determine whether or not your present insurance
carrier is competitive. Also, consider revising your coverage to reduce
premium costs. The key is to have the right balance-to be adequately
insured, but not under or over insured.
8. Re-evaluate your
advertising: Contrary to the other cost-cutting initiatives, evaluate the
possibility of increasing your advertising expenditures. This tactic
realizes the advantage of the reduced "noise" and congestion (fewer
advertisers) in the marketplace. The downturn period a great opportunity
to increase brand awareness and create additional demand for your
product/service offerings.
9. Seek the help of outside advisors:
The use of an advisory board comprised of your CPA, attorney, and business
consultant offers you objectivity and provides you with professional
advice and guidance. Their collective experience in working with similar
situations in past economic downturns is invaluable.
10. Review
your other expenses: Target an across-the-board cost-cutting initiative of
10-15%. Attempt to eliminate unnecessary expenses. Tightening your belt in
order to weather the downturn makes practical, financial sense.
Proactively managing your business through an economic downturn is an
enormous challenge and is critical for your survival. However, through
well-planned initiatives, an economic downturn can create tremendous
opportunity for your company to gain greater market share. In order to
take advantage of this growth opportunity, you must act quickly to
implement the above best business practices to continue realigning and
resizing your company to the current economic conditions.
Copyright © 2008 Terry H. Hill http://www.legacyai.com Terry
H. Hill is the founder and managing partner of Legacy Associates, Inc, a
business consulting and advisory services firm. A veteran chief executive,
Terry works directly with business owners of privately held companies on
the issues and challenges that they face in each stage of their business
life cycle. To find out how he can help you take your business to the next
level, visit his site at http://www.legacyai.com
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