Home Page | Blog | Managing | Marketing | Planning | Strategy | Sales | Service | Networking | Voice Marketing Inc.
How to Survive a Recession?
Managing Your Way Out.
First Step: What is a Recession?
How to survive a recession? What are the financial and non-financial statistics to measure, track and manage through this economy? Recession does have an impact on your business; but you can manage the impact for both survival and growth.
Search This Site
Questions you may want answered: Is there a recession proof business? How to most effectively manage the effects on your operation? What is a recession? It is important to understand that a recession is a contraction of the economy: it is negative growth (sounds like an oxymoron but it's not).
The impact of an economy recession cycle is that it can have deep, long, painful and lingering affects on your business.
While nothing you can do (individually) can impact a recession, you can still manage to minimize the impact on your business.
Unless you have a recession proof business (and there are only a very very few of those), as a small business owner or manager you need to know what, and how, to track and measure: small business statistics and KPI (key performance indicators).
This is important at all times, but even more important during a slow economy. Recession forces you to manage your business more closely because large and small 'events' can hurt your business. It also requires that you become very focused in your strategy and in your marketing efforts.
How to Survive a Recession?
Track and measure these important financial and non-financial statistics: (sample list only, make sure you understand what statistics your business needs to measure).
- Average price per hour;
- Labor data, such as total hours, overtime as a percent of total hours;
- Process efficiency data, such as average job turnaround, average estimate turnaround, spoilage, number of rework jobs;
- Capacity utilization;
- Average time for estimates;
- Average time for throughput (when it comes in; when it goes out);
- Look at your cost of producing an order (this is administration cost; for example, creating a job or project estimate, writing up the order, checking inventory availability and more).
- Amount of overtime (by customer; by type of process; remember that sometimes overtime can be a result of 'padded' estimates and/or poor shop floor management.
You need to be aware that you might be making yourself non-competitive under those conditions, overtime should not be going up if efficiencies (and orders) are going down, etc.);
- Compare average number of hours to produce a job to the average number of hours from order arrival to order pick-up; track this number and see where you can improve.
Competing on time is something that customers will often pay for! Sell time.
- Track lost orders (and why you lost them, if possible);
- Track orders (or potential orders) in the pipeline and build a data base that calculates your success rate on quotes (e.g. you turn 25% of your quotes into orders): this will give you a good base to forecast from weekly, monthly, quarterly and even annually.
- Track orders you turned down or away because you couldn't handle. Why? For example, not enough labor to do the job. Customer wants a price that is lower than you are willing or able to go.
Be careful with turning away jobs because they're 'below cost'; most of the time those below cost jobs are contributing to cover fixed costs. But also be careful about going too low and disrupting your market. Consider why you might go substantially lower in price on a specific quote and make sure you communicate that reason clearly to your customer; or you will build an ongoing expectation for low prices.
- Average collection time (receivables) and compare that time to your industry (check with your industry's trade association - they often know that number).
Managing Small Business Performance in an
Economy Recession
Financial metrics should be serving the needs of small business owners and managers during this recession cycle (and when we're out of the cycle, they should serve the needs of the existing economic environment: being adaptable is key). These measures can help you identify types of decision making approaches that you will need to use to keep, or gain, business. They will help you to identify what direction your business needs to take to survive (and maybe help you recession proof your business strategies and tactics).
How to Survive a Recession?
Ensure that your metrics:
- Are robust enough that you can make key decisions on their basis;
- Are timely; try to project trends versus review history;
- Help you identify 'problems' and point to solutions;
- Support your capital expenditures and other investments;
- Can identify areas of strength and weakness, and areas of opportunities and threats (SWOT);
As a small business owner who wants to know how to survive a recession (and even to thrive or grow in a recession), you need to be able to address whatever the current economic and market environments are; no matter whether the environments are strong or weak.
You need to be able to react quickly, and with a feeling of confidence, to changing markets, competitors, customers, or suppliers. You need to be able to use your financial metrics (not just financial ratios or financial statements) to support, and even lead, your strategic plan.
You need to have a clear understanding of 'what is profit' in terms of what you need to survive; and understand the difference between marginal profit and accounting profit.
P.S. Be aware of unintended consequences. For example, you discount your pricing to valued clients, but you overlook doing so for 'up and coming' clients; losing them in the process. You become too reliant on metrics (are they measuring cause or effect) and you stop listening to your customers, your marketplace, and/or your employees. You get diverted by historical review and horizontal analysis. These consequences or results are not what you would want for your business.
Develop your own 'hot list' of metrics for your specific business (for example in a manufacturing company, daily/weekly/monthly estimates or quotes and your 'win' or 'loss' ratio; sales by day/week/month; total number of worked hours, total number of jobs produced; total number of active customers; total production capacity (in hours), etc.).
You need to develop a clear vision of the financial impacts of your decisions.
Update your strategic plan to incorporate how to survive a recession strategies.
More-For-Small-Business Newsletter:
For more timely and regular monthly information on managing your
small business,
please subscribe here.
This is Part 2 of 2 (of a recession strategy section). Return to Part 1, Economic Recession for more on how to survive a recession; and actions to take.
Read More:
Return from to How to Survive a Recession to the Managing section.
Or return to More For Small Business Home Page.
Subscribe to
More Business Resources E-zine
Feedback from Site Visitors:
Hello. I am a professor teaching Human Resources Management. You have an excellent page on writing business value statements entitled your "Value Statement: Develop a Definition of Values in Your Business". I would like to use this page (giving full credit) to teach my students how to write good business value statements for the HR Strategic Plan they are required to prepare. Thank you. Richard C. Brocato, Ph.D. Professor of Management, Maryland, USA
(Note from Kris: I was happy to give permission to use as the source was fully credited.)
Hi Kris, I really appreciate your collection of business resources on your site; it provides a fantastic outline for writing a business plan as well as the detailed information needed to prepare the content for a great plan. Thanks, Pierce, USA
Hello. I would like your permission to quote your website within my paper for a marketing class I am taking to earn my Bachelors in Business Management. I am currently in a marketing class and I find the simplicity of your definitions and the ease with which you convey the ideas and terms of marketing to be very helpful. Thanks! Amanda, USA
This Site
Contact