Managing Downturn

Managing downturn involves controlling, which is the process of evaluation and correction that is needed to make certain that the business stays on track towards its goals. Planning and controlling are closely linked since planning sets the goals and standards for performance and controlling essentially checks to make certain that the plan is being followed. It also provides feedback so that the plan can be revised, if needed. Often small business owners handle all these responsibilities.

The important thing is to be aware that they need to be handled.Running or managing a small business often leaves little time to keep track of national, and even regional, economic indicators that might affect our industry and our specific operation. Yet conditions such as interest rates, inflation, gross national product, stock prices and consumer confidence have direct impact on our profitability and on relationships with vendors, customers and even employees.During periods of economic decline, whether widespread or cyclical for the dairy business, entrepreneurs are most likely to bear the brunt.

However, innovative small firms can gain market share by taking it away from competitors unable to adjust to shifting market conditions. They can maintain a strong cash stream throughout the downturn, in contrast to other companies that may have liquidity problems. Also, they can become a leaner, more cost-effective and more efficient operation, better positioned to do well when the market improves.

The challenge is to be aggressive and imaginative. Entrepreneurs who survive and even prosper during hard times must be able to look beyond the present, to overcome the constraints of tradition, to see the firm from a new perspective, and to do business differently. One live example of this is Mother Dairy. Though it is a big dairy but the kind of nimbleness and foresight its management showed not only to survive but also to grow is worth a case study. Mother Dairy was initially only a liquid milk plant. Subsequently it entered into ice-creams, launched new products like Mishti Dahi, packaged curd, flavored milk etc. to develop market and in turn increase its size.

Managing Inventory
We need to watch our inventories carefully, but not hold them down so tight that we lose sales. Typically during a slowdown, there is an imbalance between slumping retail sales and bloated inventories. One possibility is converting inventories into cash. This way if sales nosedive, less of our cash is locked into unproductive assets. We also need to monitor our cash flow very diligently, and forecast it monthly to ensure that expenses and planned expenditures are in line with accounts receivable. Also, we need to make sure that our financial statements provide information that is timely, relevant and accurate. Milk and milk products are anyway perishable items hence it becomes even more important that you are not stuck with high stock of butter or flavored milk etc. since the carrying cost of inventory would be too exorbitant to manage.

Managing Overheads, receivables, space and other costs We should try to separate the “nice to do” from the “have to do,” and eliminate nonessential expenses as much as possible. Ask yourself if a particular activity is necessary? If not, don’t do it. Also consider cutting personal spending.

Reduce or stretch out debt, and build up our capital reserves. Watch the credit-worthiness of our customers, even bread and butter accounts. Remaining close to existing customers, and checking to see how they are getting on during the economic downturn, not only helps avoid unpleasant surprises but could also lead to new opportunities.

We need to get aggressive with collections. According to a study, when business is good, companies tend to become lazy about collecting receivables. This can prove dangerous in a recession.

In addition, we should strengthen our banking relationships, which include letting lenders know about the company’s financial position. This is a very important aspect of managing downturn. If, similar to many companies, we acquired space in anticipation of staff expansion that ultimately proved unnecessary, this may be a good time to sublet that space - thus reducing overhead and generating extra income.

Economic downturn is the time to be prudently aggressive in the marketplace.We need to actively seek out new business, and perhaps add a salesperson or two or an extra service to give us an edge over competition. Similarly, we should not skimp on service and quality by being understaffed. In strategizing how to build our customer base and induce current customers to raise revenues, the importance of good service cannot be overstressed, especially as their buying power or willingness to spend is lessened during tough economic times.

Historically, many businesses reduce advertising and promotional expenditures rather than slash fixed costs during hard times. However, studies have shown that those maintaining or increasing ad outlays during slowdowns wind up outselling rivals who cut back. Savvy marketers can boost sales and market share, even if the industry in which they compete is in a slump, by focusing on short-term tactical techniques such as sales and price promotions. Another mistake during recessionary times is to reduce training budgets. Training can best be conducted during slack periods, especially low-cost, on-the-job instruction and broadened skill acquisition.

We need to get employees involved in policy choices as well as tactics and implementation. To do so, we should meet with staff regularly to exchange ideas on boosting productivity and other issues. While economic downturns are admittedly difficult, and increase the obstacles small businesses face in trying to survive and grow, it is not axiomatic that companies have to slash earnings and
compress market share. That recourse befalls firms that take too long to realize what must be done, or which resist change. Resourceful entrepreneurs capture the available opportunities, and take steps during today’s hard times to lay the groundwork for tomorrow’s prosperity.

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