Business Operation Basics During an Economic Downturn
by Ron Roberts and Ranger Kidwell-Ross
This article offers some great ideas about weathering an economic downturn.
It has been so long since we've gone through an
extended cycle that most of us have either forgotten
what it's like or never experienced it in the first
To start with, the purpose of having a business is to
create more wealth than you would as someone's
employee. Since few things in life are riskier than
owning a business, keeping a close eye on the financial
end and taking care of all the annoying little
accounting details is of utmost importance.
Following are the basic concepts you need to consider during a down economy. With each are ideas about how!. Just take the necessary steps to protect your business and your family's financial security.
Don't Buy Work
Buying work is almost always a horrible idea that just compounds any cash and debt problems. It is typically the action of desperate contractors who are on the way down. Unfortunately, when sales opportunities dry
up the urge is hard to resist.
Instead of listing all of the problems associated with
buying work, let's take the opposite approach and list
the few conditions where buying work may not be a
- You have sufficient wealth to recover from the money lost on a few bought jobs.
- You need to keep certain key employees on your team.
- Your big equipment is paid for and the cash costs are minimal.
That's about it. Typically, you'd be far better off
scaling down your overhead and staff to put them
in balance with the number of profitable projects you
can track down. By letting your competition buy work now, you will find
yourself in position to steal the best workers, get
great prices on used equipment, and land slow paying,
high margin work when the market recovers.
That's the best time to leap ahead of your competition
- when they are near mortally wounded from buying too
many jobs. You absolutely want to be in a position of
strength with things starts heating up again.
Pick Your Clients Very Carefully
You should always pick your clients carefully, but
especially when the market gets ugly. Even formerly
reliable clients start doing the two things that you
don't ever want to be involved in:
- Taking the low price, regardless.
- Withholding pay because they know you need it
Almost everyone gets mean when the economy turns nasty.
Not that the sweeping industry is ever a kind,
gentle place but it gets downright vicious when money
is tight. Before you sign that contract for that apparently highly
profitable job, make sure you're actually going to get
A Downturn Usually Isn't the Time To Be Building Your Business
Expanding your staff and investing in equipment to grow
your business in a down market takes guts, and just maybe
a few loose screws.
Your new staff doesn't know how your company likes things
done. You and your leadership team are thrust into roles
you probably haven't performed before. You burn cash at a
far faster rate than normal. The demands on your time grow
And if all of that wasn't threatening enough, the price of
failure explodes so rapidly, you can be buried before you
know you're going down. In other words, you life gets
considerably more complicated, the likelihood of failure
grows exponentially, and the cost of failure is beyond
imagination. Great combination, eh?
If you're seriously considering expansion when everyone
else is retrenching, you'd better be right and very well
Get Tight - Be Stinging With Your Spending
Every expense in your income statement that can be, needs
to be put on a diet. You must cut back on all
non-essential expenditures. There is no room for
There's an old saying that recessions shake out unfit
businesses. Well, you should apply that same philosophy
to your income statement. Shake it hard to knock loose
all of the dead weight.
Make Your Advertising Accountable
Now is not the time to be throwing good money after bad.
Now would be a great time to take a close look at the
effectiveness of your advertising strategy and decide
whether you should be getting more bang for the buck.
Advertising budgets have a nasty habit of growing as
sales grow. Few contractors know whether their increase
in sales is due to the advertising they're paying for or
whether word-of-mouth is spreading. That can be a very
costly piece of information to be without.
Let me give you a quick tip: keep your Yellow Pages
advertising budget small. Your clients are moving to
the web. You'd be far better off investing a large chunk
of your Yellow Pages budget on a high quality,
WorldSweeper.com's Contractor Locator is also an area that receives a high-volume of prospect traffic for only $250/year. And, when you're a part of the WorldSweeper.com Ethics Program, you are able to use the WorldSweeper ethics logo on your website and in your marketing.
Final Comment: Keep Your Head About You
If you retrench, get rid of the deadwood, refine your
business processes, and hit the streets selling, you
should come out of this down cycle smelling like a rose.
Until next time, best of luck with your business!
The Contractor's Business Coach
More information about Ron Roberts' and his company may be found on his website FilthyRichContractor.com. Ron may be reached via email sent to firstname.lastname@example.org.
If you have new information to provide on this topic, let us know and we can add it in as an addendum to this article.