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The credit crunch: Is it time to panic or profit?
October 10, 2008 (Boston Business Journal)
Staying the Course - Difficult economy may be worst time for conservative thinking
Editor’s note: This week the Boston Business Journal starts a regular feature designed to help companies strategize during challenging economic times.
Credit crunch and financial market chaos sound like conditions that could shut the doors for many small businesses, but experts say there are many strategies for even the smallest companies to survive — and even thrive — in a tumultuous economy.
“Don’t bury your head in the sand,” said Jeffrey Davis, chairman and founder of Mage LLC, a Newton-based management-consulting firm. “Leadership. The same thing I tell people today, I told them 12 months ago. Twelve months ago, they didn’t see why they needed to make change. People are listening more today.”
Experts cautioned small-business owners to take their time right now before making any moves: Carefully evaluate their industry, comb through their budgets and finances, take a tough look at staffing, and revisit their business models.
The extent to which small businesses are feeling the current market strains varies by industry, experts said. Those in the financial services and transportation-related sectors may need to batten down the hatches more than those in technology and health care, said Mark R. Allio, director of the Massachusetts Small Business Development Center Network, Boston Regional office, and the Minority Business Center at the University of Massachusetts-Boston.
“For any business owner, it’s really important not to follow the herd,” Allio said. “If you took a hiking trip up Mount Washington and the weather turned bad, it would be important to take stock of where you are and what you have and plan accordingly. This is the same type of thing.”
When it comes to budgeting and finances, small businesses seeking capital to cover costs simply may assume banks are not interested in making loans. Instead, they may tap personal savings or borrow on credit cards to pay bills.
Big mistake, experts said.
“They need to do their homework,” said Bob Nelson, district director for the Small Business Administration, adding the community banks are where small businesses should look first. “Banks are still lending. When I look at the typical SBA borrower - $2 million and less – there are banks out there looking for good customers and good loans, even if there is some tightening in underwriting.”
Another approach is to stay lean – increase revenues, reduce expenses. Negotiate new pricing and payment terms with vendors. Delay hiring decisions and unnecessary expenses. Renegotiate debt to reduce interest expense. Take a close look at staff.
“You need to evaluate if you have the right people in the right positions, with the right skills and training. Move people around. Change positions. Streamline. And they need to be measured,” said Davis. “If you’re setting strategy but not measuring or monitoring, you don’t know if people are doing what you intended them to do.”
On the revenue side, small business owners should take a look at their business plans and brainstorm ways to expand their client base and expertise. Exporting is one possibility, said Nelson. So too, are government contracts.
“The government always pays the bills,” Nelson said. “There is opportunity for small businesses in government contracting. The government buys paper and office supplies and furniture. A lot of construction companies do well in government contracting.”
For every small business that fails in a churning economy, another one succeeds, and strategy experts encouraged small-business owners to take advantage of the opportunity to stand out among competitors.
“We’re calling every old customer again,” said Stuart Elfland, owner of Metropolitan Cabinet and Countertops in Norwood, who hire Davis to consult on business strategies. Elfland said his sales for 2008 are on track with 2007. “There could be more business within our own existing accounts. Sometimes people just need a nudge to come back or they could be solicited by other people.”
Nelson agrees that “staying in front of customers” is critical.
“Blog. Sit on a panel. Do things for the community,” he said. “There are a lot of ways to get the word out. Cut the budget on advertising, and some other company that’s getting the word about a competing product and service is the one that will take the business.”