Think the challenges you’re facing in a shrinking economy are unique? Think again.
Steve Stiffler, director of BC Corporate Strategies in Akron, a division of the Canton-based accounting firm Bruner-Cox, has made a career out of helping companies resolve their problems. He’s identified five common obstacles smaller companies are struggling to overcome.
1. Delays in enacting cost-cutting measures in the face of reduced profits and losses. That usually means trimming the cost of labor, which, other than the cost of raw materials, is the biggest expense for most companies.
“A lot of times, this is an emotional issue with the management,” Stiffler says. “Their work force has been with them a long time. They consider the workers an extension of the family.”
Other employers, remembering the trouble they had finding qualified workers in a tight labor market, are reluctant to let good people go.
But employees advised of the situation sometimes come up with a solution of their own. Stiffler says workers at one company volunteered to cut their hours to save the jobs of others. He suggests calling for volunteers to be laid off, especially if the layoff is only for a short time.
2. A limited customer base. “There are a number of companies that have either relied on one industry or a small number of customers to provide their revenues,” Stiffler says. “As a result of either a downturn in that industry or a downturn with those customers, it’s had a negative impact by reducing revenues.”
3. A lack of a formal sales process. “Because they’re tied to one industry or tied to a small customer base, companies have acted more as order-takers rather than being proactive with their sales approach,” Stiffler says.
Although the solution — establishing a sales process and, in turn, expanding or diversifying the customer base — takes months to implement, Stiffler urges sales executives to begin as quickly as possible. Many of his clients have been more successful working with a manufacturer’s representative, an independent contractor who sells products to a certain industry.
He says the rep may already have established contacts with prospective customers and earns a commission on sales as opposed to a salary and benefits.
4. Slow-paying customers. “Customers are asking for extended terms when they’re placing new orders,” Stiffler says. “A customer may have paid in 45 days, and on any new orders, they’re asking to pay in 60 days.”
The result is reduced cash flow and an additional need for working capital, which some businesses are handling by asking for extended payment terms of their own.
5. Inadequate or improper financing. Undercapitalized businesses that used lines of credit typically reserved to fund working capital are suffering in the face of reduced profits/losses and unpaid receivables.
“They may be seeing some uneasiness with their banks,” Stiffler says. “If they have a loan agreement, they may have some covenant violations for, say, cash flow coverage, or maybe their debt-to-worth ratio is higher than the bank allows.”
Obtaining adequate financing usually involves producing for the bank a business plan that will return the company to profitability. But before helping a client prepare such a plan, Stiffler asks bank officials if they even want the client as a long-term customer.
If not, the search begins for alternative financing.
“If you’re stumbling, we can help you,” he says. “If you’ve fallen, then that’s a whole different ball game.”
How to reach: Bruner-Cox Akron, (330) 376-0100, Bruner-Cox Canton (330) 497-2000
Too young to know
We all may know the signs of a shrinking economy, but many — especially those in their 20s or early 30s — don’t know how to react to them. Most people who entered the work force in the ’90s have never experienced an economic downturn, let alone a recession.
Now many of those people are business managers, and they’re unfamiliar with red ink on balance sheets.
“The expansion of the economy lasted almost 10 years,” notes Steve Stiffler, director of BC Corporate Strategies. “Things were pretty good during that time. A number of management teams in place today have never seen a situation like were seeing now.”
He says that inexperience has possibly exacerbated the problems many businesses are encountering because those managers have never had to deal with cost-cutting measures such as layoffs and offering extreme product discounts.