It’s no secret that this country is in the
middle of some rough economic times.
The only certainty in the world economy these days is uncertainty. Company
executives are being forced to make some
tough decisions — not only to deal with
the economic downturn, but also to
stay afloat.
Of course companies are watching, and
cutting, expenses. But John Flatowicz,
CPA, audit shareholder with Briggs &
Veselka Co., is advising clients to do more
than cut the budget to weather a tumultuous economy.
“Number one,” Flatowicz advises, “focus
on your key customers. Your customer
service should be at the highest possible
levels. Be alert to opportunities; can
you gain market share by offering superior service, closer relationships and a
willingness to negotiate rates? Are you in
a position to acquire or merge with companies who may be offered at a discounted rate?”
Smart Business spoke with Flatowicz
about how companies can better cope in
uncertain economic conditions.
What should a company do to cope with the
current economic climate?
The first steps to take involve strengthening your balance sheet and taking the
necessary steps to maintain or improve
cash flows. By strengthening the balance
sheet, you’ll be able to give your bankers
a balance sheet that they can feel more
comfortable with and they’ll be better
equipped to renew your existing line of
credit or extend it, if necessary.
Strengthening your balance sheet could
involve reducing inventory levels while
maintaining current sales levels via economic order quantities techniques, or
keeping on hand only the best gross margin products.
The second step is to maintain or
improve cash flows by cutting nonessential expenses. Also, you’ll want to enhance
revenues and related gross margins.
Reaching out to new and existing customers and being willing to negotiate
terms can result in new sources of revenues, even in a down economy.
If you must cut expenses, what’s the best way
to do it?
The most effective method is to cut
nonessential expenses that don’t have an
effect on the ability to generate revenues
and cash flows and that don’t result in the
loss of employee morale or quality of
work. Once nonessential expenses are
identified, it should be rather painless to
cut or reduce them entirely, while still
maintaining your revenue stream and quality of work or product. Every company
will have different nonessential expenses,
but some to consider include excessive
travel, dining, entertainment and outside
seminars and conferences.
How is this economy affecting staffing?
You should look at staffing in terms of
which people you need to keep to maintain your company’s quality, revenue
stream and related cash flows. Those personnel who are critical to maintaining revenues and cash flows should be kept.
Noncritical employees can be cut, just like
nonessential expenses. Companies should
also think about which employees are
long-term players and will be able to help
the company grow when the economy
turns around. You don’t want to lose talented employees by being shortsighted. If
you have to reduce salaries to survive,
consideration should be given to reducing
or freezing salaries versus actual layoffs.
How can you ensure that budgets will remain
sufficient and effective?
Budgets are even more critical to follow
in tough times. You need to know if
expenses are exceeding what you can
afford in this economy. To help ensure that
budgets are still reasonable, companies
should review them monthly and change
or update as needed to reflect the realities
of reduced sales or critical expenses. If
competition requires you to market more
to maintain or increase sales, then you
should increase your marketing budget
while decreasing other budget items. On
the other hand, if sales are down significantly, even after heavy marketing, then all
purchases and other expenses may have
to be budgeted to decrease on a prorate
percentage. The budgeting process should
never be a stale, once-a-year task. It should
always be updated to reflect the current
situation, particularly in a tough economy.
How to do you reconcile short-term goals
without losing sight of the long-term picture?
The short-term goal of surviving in a
tough economy should actually enhance a
company’s ability to be more successful in
the long run. If you focus on maintaining
quality, keeping key people, and reducing
nonessential staff and expenses, you’ll
maintain revenues, related cash flows and
reputations. Then, you’ll be in great shape
to really expand when the economy turns
around, as it surely will.
Companies that will thrive when the
economy recovers are the ones that will
focus on their key customers now by providing high levels of customer service.
They’ll gain market share by offering superior service, closer relationships and a willingness to negotiate rates to help both
existing and new customers.
JOHN FLATOWICZ, CPA, is an audit shareholder with Briggs & Veselka Co. Reach him at (713) 667-9147 or [email protected].
