Surviving And Thriving In The Economic Downturn (Part 1)

Part 1 - By: Denise Hebb, CPA - Certified Public Accountant & Certified Fraud Examiner As a small business owner, it is almost inevitable that the current economic climate has caused you to panic. Decreased sales, lower profit margins, and slower collection of receivables certainly creates a stressful situation. But, for most small business owners, the current uncertainty is not something new. Just think back to when you first started your business or to when you weathered the last economic downturn. While you probably worried about whether your business would succeed or fail, there was also something exhilarating about the path you had chosen.

I have spent the better part of my professional career making my own way. I often describe it as flying without a net. There is something exciting and liberating about making my own way. Making my own rules, setting my own goals, and executing my own business strategies is what makes going to work every day seem worthwhile. Even as I work much harder than any "real" job might demand, I feel free. Free to set my own path, free to make my own mistakes, and free to succeed beyond my wildest imagination. Even a long-term consulting gig begins to feel like a cage to me.

Such freedom requires that I bear the burden of the risks associated with running my own show, but it also allows me to reap the rewards of a successful endeavor. My biggest fear is that my business ventures will be unsuccessful and I will be forced to get a real job. It is this fear drives me. I work hard, but as soon as I achieve a goal I move the goal line. It is a constant push forward, always waiting for the next sign of my success. I am incessantly impatient and cannot wait to see the results of my work. So, a slow down in the economy concerns me.

I liken the current economic environment to starting a new business venture. While there is a lot of uncertainty and risks prevalent in the current economy, there is also an enormous opportunity for success. Not every small business will weather the storm, but those that survive might benefit from less competition. Taking advantage of current opportunities might be as simple as getting back to basics and behaving as if you just started your business. Starting any business required the right mindset and the willingness to do whatever it takes to succeed.

Don't be afraid to get your hands dirty. When starting a new business, you had to be prepared to do whatever it took to succeed. You did not have the resources to hire someone to perform many of the required tasks. So, you rolled up your sleeves and did whatever needs to be done. You answered phones, took out the trash, or delivered a customer order yourself. And, if you are honest with yourself, you happily did whatever needed doing. A downturn in you business might require you to step into some of the roles you originally fulfilled.

Now is the time to evaluate your staff and determine if it makes sense to outsource or insource some of the work to yourself or family members. While your current staffing levels might be ideal, you may simply not be able to afford ideal. Just as you did when you first started, you must critically evaluate your current employees and determine if cutbacks are required for your business to succeed. Waiting too long to make this assessment might mean the end of your business.

But, be warned, do not act too hastily. Good and loyal employees are hard to find. Cultivating talent is often a lengthily and costly process. Partial cutbacks may be a better alternative to cutting positions entirely. For instance, employees will often accept a reduction in their pay if it means that all employees get to keep their jobs. As a business owner, you must carefully evaluate your employees and their efforts against the needs of the business.

Expect to make sacrifices. I'll admit it. I am used to a certain standard of living. I hate doing without. Yet, each new business I started meant that I might not receive a weekly, or even annual, paycheck. This is the price paid for the freedom that running your own business. If you want a steady, predictable payment for your services, then maybe a "real" job is for you. Having your own business means that you must be prepared to sacrifice some of your financial security and be willing to go into debt - responsibly, of course - if necessary to ensure that your business succeeds. It can be a frightening road, but a road that should be familiar to many small business owners. While doing without a paycheck is stressful in the short-term, it can have many long-term benefits. There is no doubt that I have earned many times over the salary that I could have expected from a regular job. The greater risk has certainly resulted in much greater rewards.

When business is booming, we all have the tendency to more freely expend our resources. We expand of lines of business, hire additional staff, and fail to carefully scrutinize our purchases. When the profits are flowing, spending doesn't seem quite as important as it did in the beginning. But, now is the time to postpone nonessential expenditures and focus your efforts on your most profitable lines of business. Just as you did when you first started your business - you must evaluate all expenditures. Are they necessary? Are there lower cost alternatives? Can the expenditure be postponed? Take a long look at all expenditures including inventory, occupancy costs, payroll and employee benefits, and travel and entertainment. Just as you did in the beginning, you need to get by with a bit less.

Renegotiate your office lease. Has the market rate for your space declined? Does your building have an excess of vacant offices? Is your lease about to expire? Are you paying for space you don't need or use? Use the downturn in the economy to your advantage by trying to renegotiate more favorable terms. Perhaps agreeing to a lease extension will allow for a significant cost reduction. Not surprisingly, you may find your landlord more than willing to renegotiate the terms of your least. But, if you don't ask, you will never know.

Review your telephone and Internet services. Are there lower cost providers in the area? Do you need all of your existing lines? Just as when you started your business, shop around for the best value.

Review your routine office supply purchases. Often, as a business becomes more profitable, the purchasing of supplies is delegated to an administrative staff member. As time goes by, the plethora of supply choices in the office expands. Anything the staff desires is automatically ordered. Shopping for the lowest price takes a backseat, supplies are ordered ad hoc and without much consideration. Your review of such purchases can save you a significant amount of money. A small investment of your time can reap huge rewards.

I had recently worked at a small CPA firm. A new office manager was hired and placed in charge of purchasing office supplies. We had a good year of getting anything the staff wanted. I mentioned that I would like to have a laminated set of tax return assembly instructions placed at the front-desk, a single page document - a laminating machine and all required supplies was promptly ordered. I mentioned that we should have binding combs available in various sizes - a file drawer full of binding supplies (more then could be used in a decade!) arrived shortly thereafter. Needless to say, we had any type of pens, pencils, paper, calculators, desk lamps, or other office supply that we wanted. The office staff was ecstatic, but the bill for these supplies had to be enormous.

Review service contracts. Whether it is your IT support, office cleaning, or payroll service, many services are commodities. Paying a premium for such services makes little sense when your profits are soaring, but they make even less sense when things are a bit tight.

Pay attention to your "cringe" factor. When signing checks, notice if there are expenditures that make you cringe. You are most likely not getting value out of these expenditures. Now is the time to review them and find a way to reduce them or find a better provider.

Contributor: Denise M. Hebb, CPA is the owner and president of D. Hebb & Company, LLC, located in the Wexford Professional Building II, 11676 Perry Highway, Suite 2105 Wexford, PA 15090. Denise can be reached at (724) 935-5480 or

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