Surviving And Thriving In The Economic Downturn (Part 2)

Part 2 - By: Denise Hebb, CPA - Certified Public Accountant & Certified Fraud Examiner PAY ATTENTION TO THE DETAILS. Just as you did when your business began, now is the time to pay attention to all of the small details of your business. As you expanded, you likely hired additional employees and delegated much of these small details.

Review employee expense reports. In good times, employees are likely to claim excessive reimbursement for "business-related" expenses. It is standard practice, a little perk for a job well done. But, as your profit margins decline, it is just such expenses that can sink you. Take the time to review these expenses, don't hesitate to refuse excessive reimbursements, and consider establishing a less liberal reimbursement policy. For instance, mileage reimbursement does not have to be that allowed by the IRS. Many companies routinely reimburse mileage at a lower rate - if you are paying the maximum, now might be the time to reduce this cost.

Be alert to fraud and abuse. It is a fact, employees steal. Whether it is cash and inventory, taking excessive paid time off, or slacking on the job, employees are often self-serving. In the current economic turmoil, employers should expect an increase in such behavior.

The fraud triangle describes three conditions that must exist in order for fraud to occur: pressure or incentive, rationalization, and opportunity. As businesses suffer through hard times, employees are also experiencing their own difficulties. Making their mortgage payment or meeting other obligations becomes more difficult, creating an incentive to take advantage of their employer. Pay cuts, layoffs, or uncertain continued employment enable the employee to rationalize that, in these difficult times, it is reasonable for them to look out for themselves. The incentives and rationalization naturally arise even more frequently in the face of economic uncertainty. There is very little that you can to do curtail these factors.

This leaves just one condition that you can impact - opportunity. Making sure that you have adequate controls over assets such as cash and inventory, closely monitoring the behavior of your employees, and independently reviewing business transactions is your best defense against employee theft. Employees, even dishonest ones, want to appear honest. Implementing proper internal controls will increase the employees' perception that they might be caught. It is the threat of being exposed that deters most employees from taking advantage of you.

Monitor inventory levels. Inventory represents an investment. You manufacture or acquire goods, hold them in stock until they are sold, and hopefully sell them at a profit. While held for sale, inventory is an idle asset - not making you any money and, in fact, compromising your cash flow. Now, more than ever, you should avoid unnecessarily high inventory levels. Monitoring your "days in inventory" ratio is critical. Cut back your orders or production to meet your current demand. Consider selling inventory that has been on the shelves for a while at a discount. It is better to breakeven or even take a small loss on the sale of unproductive assets than to continue to have cash tied up in them.

Focus on service. It is exceptional customer service that sets you apart from your competition. Exceptional customer service is appreciated and can make or break any business. It is often an intangible asset that drives repeat business. Make sure that everyone in your organization understands the importance of exceptional customer service.

I am a loyal Costco customer. Their prices are right, but their customer service routinely exceeds my expectations. I purchased a leather sofa and loveseat in August 2006. My family had enjoyed this purchase for nearly three years, when I noticed that the leather on the armrests has seemed to melt. It is not just wear and tear, but appears to be some sort of problem with the treatment of the leather. I approached the service desk at Costco to inquire if anything might be done. Considering that the furniture is nearly three years old, I did not expect much. But, to my great pleasure, Costco informed me if I was not satisfied with my purchase; they would gladly accept a return and give me a full cash refund. Threes years later, a full cash refund - once again, my expectations were greatly exceeded. Wonder why I am a loyal Costco customer? I buy everything from furniture and appliances to food, clothes, and books from Costco. As I said, the price is right, but it is the customer service that really knocks my socks off.

Know your competitive advantages. You need to know what you do that sets you apart from your competitors. You need to able to clearly articulate your competitive advantages. Identify your strengths and highlight them to your customers. In tumultuous times, it is best to stick with your core competencies. Use your core strengths to make your business shine.

Focusing your efforts on existing customers. As sales decline, competition for business increases. This makes keeping close contact with existing customers more important than ever. Ignoring them simply gives your competition an opportunity to get their foot in the door. Your existing customers are your biggest asset - work with them to increase their orders and to obtain referrals.

In addition, while sales to your customers are important, cash flow is even more critical. Keeping close contact with your existing customers allows you to continually assess their ability to pay their bills. Be alert to downturns in their businesses and pay close attention to your accounts receivable. Changes in payment terms might indicate they are having trouble paying their bills. Don't be afraid to call for your payment, it is often the squeaky wheel that gets the attention.

Focus on profitability, not growth. Growing a business often requires a substantial investment, one that might not be possible during down times. It is better to focus on your bottom line. While it is tempting to reduce your prices to spur increased sales, this is not always a wise course of action. Reduced prices decrease your profit margins and, even when the economy recovers, your customers may be resistant to price increases.

In addition, before reducing your prices, you must consider how this might harm your "brand". Remember, for most businesses, price is not the only factor customers consider when making their purchase. Even products that might be considered commodities are often differentiated and sold at various prices.

Continue marketing your business. It is tempting to cutback on advertising during down times. Many small businesses are likely to decrease their advertising, so use this to your advantage. Maintain or even increase your efforts. Marketing builds businesses; this is especially true when the economy is down. Consider some low cost alternatives to your current advertising.

Direct mail works. I have successfully used direct mail to market a number of successful businesses. I have consistently found that it provides more results per dollar spent than traditional advertising.

Reactivate past customers. Approach inactive customers and ask why they are no longer customers. Determine what can be done to make them customers again. If your company has failed in some way, vow to remedy the situation and ask for the business back.

Take the time to call on potential customers yourself. Everyone likes to feel appreciated. Calling your customers is one of the best ways you can convey your appreciation. A lunch, a quick cup of coffee, or dropping off a small token of your appreciation will go a long way towards making your customer feel important.

Do anything you can to get yourself in front of customers or potential customers. Speaking at events or hosting workshops enables you to hold yourself out as an expert and gives you the opportunity to meet new people - potential new customers.

Newsletters are a great way to get your name in front of both existing and potential customers. Often you can purchase a prewritten newsletter that can be modified and used to enhance your marketing efforts.

Update your website. Often websites are developed and then just left to be. Doing so is not making the best use of your investment and the monthly hosting fees you must pay. Update your site, add links, and actively promote it. Entire businesses thrive on marketing efforts linked to their website. Use your site wisely.

Finally, don't worry unproductively. Worrying about things outside of your control increases your stress and distracts you from areas that are controllable. Focus your time and energy on the things that you can control. Let others worry about the world economy while you control your own attitude and actions. Identify strategies to highlight and increase your business. Even in down times, businesses survive. Do what you must to ensure that your business is one of them.

Guest 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

ThistleSea Business Development, LLC is proud to have Hebb & Company, LLC, Certified Public Accountants as a client. © 2009, ThistleSea Business Development, All Rights Reserved

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

ThistleSea Business Development, LLC is proud to have Hebb & Company, LLC, Certified Public Accountants as a client. © 2009, ThistleSea Business Development, All Rights Reserved