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Strategies for Weathering Tough Times

(February 2007) posted on Sat Feb 24, 2007

Conservative as well as aggressive methods to deal with down cycles in your business.

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By Marty McGhie

Everyone probably agrees that business runs in cycles. If you have been in business long enough, it’s likely that you have experienced the ups as well as the downs. While handling prosperous times can make even the most mediocre managers look good, managing during the tough times is always the best test of your merit. This month, let’s examine some strategies you might want to implement when you find yourself dealing with those more difficult times.

One approach when working through a down cycle is to just continue to go about your business and hope the market eventually corrects itself. Don’t do anything rash, continue in what you have done in years past, and in due time you will survive and start making money again.

If this strategy seems overly simplistic and naive, however, it probably is. My experience is that in our type of market, taking a "status-quo" approach probably won’t work. Yet, it’s amazing how many managers will ignore business cycles, trends, and the numbers, just hoping that their slumping business will magically pull itself out of the doldrums once the markets correct themselves. The problem is, with the speed at which business moves in this era, your company may not make it if you don’t take a more proactive approach to your problems.

A conservative approach
Another tactic may be to take some conservative measures. This could include laying off excess workforce, reducing shifts, freezing wages, lowering expense allocations, stopping any hiring, or laying off some management personnel. You might want to examine your equipment needs and decide to sell off some idle equipment, generating cash that can be used to lower some of your overhead or fixed costs. For example, perhaps you can use the extra cash to pay down a debt that is creating a heavy burden on cash flow each month.

The plan could also include a cut in your prices, attempting to generate more sales. But beware of the slippery slope here: Once you cut your prices to your customers, it may prove challenging to return them to their original levels. In this, and any plan of attack, you should closely examine your monthly expenses to determine just where you can cut back. A thorough analysis of your monthly expenses usually will yield some areas where you can save money.