Your Next Move When Business Is Down
My company is suffering this year, with revenues flat and cash flow sagging due to many slow-paying clients. I have no idea how to market in this kind of environment and have even considered selling my company and trying something new. Do you have any advice? —C.S., Flagstaff, Ariz. There's no arguing the fact that these are trying times, and not only for entrepreneurs. Most business owners have never seen an economic downturn as deep and as persistent as the one we've experienced for more than a year. Indeed, the downturn started more than two years ago for many small companies. "This is a scenario most entrepreneurs never imagined. It's a real wake-up call to see your life savings dwindle to half. Many [business owners] wonder if they're even going to survive. It's taken the wind out of their sails," says Mark Rittmanic, chief executive of
a business consultancy based in Northbook, Ill.
In one sense, a routine recession can mercifully winnow weak companies that probably would not be successful over the long term. But a prolonged downturn like the one we are experiencing challenges even solid small companies with positive track records.
A Personal Decision as Well Only you and your family can make the ultimate decision about whether to hang in there or jump ship and start anew. But don't be afraid to take your personal feelings into account, along with larger questions about your employees, finances, and customers. Is your business something that you enjoy operating day after day? If it is, rely on that enjoyment to give you staying power. If it doesn't, you might be miserable at your company even if business improves over the next months and years—as it inevitably will.
If you decide that you want to keep at it, you may not be in as bad a position as you think. If your revenues are flat (rather than declining) and you still have clients (albeit the slow-paying kind), you may be doing better than many of your competitors. Selling now could be something you regret later, particularly with business valuations down substantially.
Consider cutting back on both costs and production until your market picks up. Or find your product or service in this particular economic climate.
Consider focusing your marketing campaign on cost-conscious customers. "Talk about the edge you have, where's your value added, what differentiates you from the guy down the street, and focus on your strengths," says , executive vice-president and managing director of the technology group at Safeguard Scientifics ( (SFE)), a public company based in Philadelphia that buys equity stakes in technology and life-sciences firms.
"A common thing that people will buy even in a down cycle is something to cut costs. If you can redirect your marketing to telling customers how they can save money, you'll still make sales," he says.
Rivals Are in the Same Boat If you have some money on your balance sheet, don't forget that this is the ideal time to buy up competitors who are just as discouraged as you are, but don't have the fortitude or financing to stay in business. "Sooner or later, people will have to make some tough decisions. You might provide some beneficial pricing and use a strategic approach to acquiring them," Kemmerer says.
Many small businesses are available at what could be considered bargain prices, Rittmanic says, though getting funding for an acquisition or merger will be tough. You might look to private equity investors to make a purchase that will turn out to be a strategic move in the long run.
Another strategic move, if you have cash on your books or a still viable line of credit, is to make some capital improvements. It's very likely you can get bargain prices on equipment or upgrades to your physical space. "If doing them would bring you extra productivity in the upturn—one or two years from now—then I'd say it's a good idea if you've got the money," says Ron Adair, a partner at The Resource Group, a financial planning firm in Glendale, Calif., that works with many small business owners.
If you're still glum and don't see any prospects a few months from now, think about positioning your company to be acquired by a larger firm that's looking for bargains. You'll be in a good position for an acquisition if you've got some cash on your balance sheet, and if you're ready to move on, selling may be the best way to go.