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 place.

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.

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 completely wrong-headed idea.

1. You have sufficient wealth to recover from the money lost on a few bought jobs.
2. You need to keep certain key employees on your team.
3. 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.

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:

1. Taking the low price, regardless.
2. 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 paid.

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 by magnitudes.

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 funded.

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 error.

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.

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, interactive website.

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.

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!

Ron Roberts,
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 ron@filthyrichcontractor.com.

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.

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