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Don't Get Run Down By A Cycle

 

Every economy has cycles of expansion and contraction, or boom and bust as they’re often called. The expansive stage is a time of growing and accelerating economic activity that reaches a peak, and then yields to a contraction where production, sales, and incomes decline. Cycles vary in their lengths and strengths, but neither good times nor bad times can last forever. The turning points in the periods of expansion are the ‘peaks’ and in the period of contraction are ‘troughs’.

Economic downturns can have a tremendous impact on people and businesses. Yet many businesses have managed to grow and prosper during times when others were going under. There are obviously ways to survive in even the worst depths of a recession. Here are some things that can strengthen your business and help ward off the worst in times of a business slowdown.

Strengthen relationships with customers

It costs money to attract new customers and money is what businesses usually run short of in the lower part of a cycle. Market heavily to your existing customer base and do all you can to bring their next purchase forward to maintain cash flow. Present them with special offers and extra attention - if they’ve bought from you before, they can be encouraged to do it again.

Keep an eye on what the competition is doing

If anyone’s likely to find a way out of a trough it will be one of your competitors. Keep in touch with others in your line of business and be alert for any signs of success. Get active in your industry association or chamber of commerce to keep up with other businesses in your community. Contact leaders in your industry around the country and share information.

Negotiate a better deal with suppliers

If times are tough for you, they’re tough for others as well, and that includes your suppliers. This gives you the opportunity to negotiate better deals on everything you purchase, from office supplies to raw materials. You can achieve discounts by agreeing to pay by a specific date instead of waiting until the end of the month, or by centralising your purchasing with one supplier.

Consider new products or services

The bottom of economic cycles can be an excellent time to introduce new products. The costs of labour and materials can be low compared to better times and customers will be looking for simpler products that cost less than ‘expensive’ versions, but still meet the same needs. Products with higher margins can be repositioned and sold into new market segments at lower prices.

Carry out maintenance

When business is booming it’s often hard to find enough time to maintain business premises and equipment. It can be difficult to schedule repairs when equipment is running at peak capacity. A slowdown presents the opportunity to look after the condition of your business assets and get them ready for the next upturn.

Look for production cost savings

Keep an eye on your finances. You might not have had the time or the incentive before to really look at ways to reduce costs; now you must. Review all expenditures and see where costs can be reduced, or eliminated altogether. A lot of expenditure becomes habitual and is done without much regard to the value returned from it. Do some comparison shopping for everything you need to purchase and you may be pleasantly surprised at the savings that are possible.

Control credit

Be firm with the application of your business’ credit policy. Talk with your major customers and explain that you need their payments on time each month so you can continue supplying them with the goods or services they need and still meet your own commitments. Don’t let accounts become overdue; contact customers the day an account is due for payment. Offer to collect payments from local customers. The worst thing a business can do during an economic contraction is to ignore their cash flow.

Until next week,
Mike Reddy
www.syb.com.au