Downturns happen to every business. Some are caused by a slowing or recessionary economy. Some are caused by customers going out of business and leaving you with large unpaid receivables. Some are simply caused by bad luck or mistakes.
Rare are the businesses that have not suffered through some combination of these issues at one time or another.
In fact, most small businesses (and large businesses for that matter) suffer through these things—more than once—during their business lifetime.
So, how do they survive and how will you survive.
One, it is important to recognize that you are not alone in this struggle.
Your emotional health is likely the number one issue that needs attention—particularly when things get really tough. As I mentioned earlier, many times these issues come through no fault of your own—often you and your company are swept up in tidal waves not of your own making.
I have an example.
I had a personal relationship with a man that owned a third-generation business doing cabinetry and mill work. They had a fantastic brand and regularly did mill work for recognized companies like Google, Nike and Apple. By small business standards, they were big and profitable, employing hundreds of people and generating top line revenue of over $80M annually.
By every mark they were an industry leader and recognized by nearly all their peers as one of the top specialty mill companies in the world. When the great recession hit they were, like most contractors, caught in the cross hairs of declining business.
The company strategized to determine how to best combat the downturn and keep their company growing. They brought in a new CEO—his strategy was to find related scope items that the company could bid and supply as package assemblies.
Rather than just bidding wood and cabinetry, their specialty, they started adding the likes of metal, solid countertop surfaces and other specialty products that were just outside, but related, to their niche.
The basic strategy seemed sound—develop a one-stop shop and bundle their bid with multiple scope items. The strategy was that this would make it easier on the general contractor (because they would only have to deal with one reputable sub-contractor instead of, say, three) and that the bundled scopes would create economies of scale when it came to project managing and working on the project.
Finally, the new CEO put some incentive packages together for his estimators to encourage them to stretch into new scopes and find solutions to provide these “combined packages” to serve up to their General Contracting customers.
At first, the strategy seemed brilliant. Everyone bought in and went to work. Incented to go and win new jobs, the estimating teams started bundling bids which included the likes of decorative metal, specialty countertops, solid surfaces, specialty flooring, etc.
The company started winning bids. It felt successful and new employees were being hired rapidly to get the work done. Walking through the business, one could see employees being stuffed into every empty corner—people were everywhere.
Unfortunately, once the actual work began the problems started. Many of the bids, because the estimators were vastly underqualified, were way too low.
Even more, the project-management-economies of scale never materialized because, as one could easily guess, just like the estimators, the project managers were floundering trying to manage production and installation of materials in which they had no experience.
Needless to say, this one-hundred-year-old company was suddenly gasping for air as the loses from their enormous backlog of work started to gobble up their cash. This industry giant was on its’ knees and fighting for survival. Bank notes and credit lines soon were at their max. Vendors were beginning to cancel shipments because they were not getting paid. Every expendable piece of overhead was chopped and many employees who had been there for a long time lost their jobs.
During all this turmoil, I had the opportunity to ask the owner of this proud three generation family business, “How do you manage the stress and anxiety of this very difficult challenge.” I will never forget his answer, “I come here every Sunday after church and stand out in the shop, looking at all the lifeless equipment and material scattered abroad, waiting for Monday’s work. It is quiet. It is peaceful. I stand out there and pray and I don’t stop until I get a feeling inside of me that everything will be alright.
Once I get that feeling, I head home and then ready myself for one more week’s worth of work. I live to get through a week, sometimes even a day, and then start the process over again on Sunday—that’s the only way I know how to do it.”
Gratefully, this story does end well. The company owner felt the weight of letting down his father and grandfather. He certainly felt the weight of not wanting his company to fail. His company’s failure was on the brink but he found a way to hold on—even when it seemed impossible.
As you can guess, they made many changes. The CEO lost his job but today this business is thriving again. I give the owner credit for having the courage to hang in there when his stress valves were maxed out!
The point of this story is if it can happen to this amazing company it can happen to any of us. Hang in there. Don’t give up. You are not the first nor will you be the last to face hard times. You can make it and live to see the sun rising on your business again.
Look to others for help and do not be embarrassed. We have all been through this type of experience and, in fact, see struggling business owners as heroes and champions not the opposite.
Two, downturns are usually best survived by shrinking, not growing, your business—even down to its lowest level of breakeven operating capacity.
I get kickback on this thought. It, frankly, is not in our mindset to shrink the business. As business owners, nearly all of us take great pride in providing work and security for our amazing employees. Shrinking the business very often means letting employees go. That is extremely hard to do, particularly if you are facing a slow economy. Jobs are scarce and people feel fear and shame when they are laid-off from their jobs.
Furthermore, your pride is on the line—many of us have read heroic stories of business owners that refused to lay-off employees no matter how dire circumstances get. We, of course, hear these stories because they are testaments of courage and achievement. They resonate within us—we want to be the same kind of champion.
Here is the reality. The number one fixed expense on your balance sheet is almost always labor overhead. Doubling down here, the number one variable expense on your income statement is almost always labor.
Tripling down, even if you comb and strip through all your other fixed costs, you will never find enough cash to overcome the expense of labor.
I know the arguments: I am cutting into the bones and sinews of my company; I have trained these people for years; I will never be able to replace them; I owe them because they have been so loyal to me; I don’t have the courage to look them in the eye and let them go.
I know and have lived, personally, through every one of these arguments. They are all true but even truer, labor is your number one fixed expense.
Consider this—people will know that the company is struggling; they will understand that, through no fault of your own in most cases, the business is in trouble; they will be able to find other jobs; they will often come back and work for you when you get back on your feet; they will survive; you shoulder all the risk; your house is likely on the line; your credit is on the line; you will be able to train new people; you will find a way to create what you lost again.
I know that sounds harsh but the number one thing that kills small businesses is that they wait too long to let go of people. Slow to hire and quick to fire was never a truer statement, particularly when your business is struggling or turning down.
Just like fixed labor, for those that have businesses with variable labor (for example shop workers), this expense is relentless and large. Shop employees know when thing begin to slow. They find a way to stay busy even when the work pace slows considerably.
Trim your shop labor down to the lowest point possible. Keep only your very best and watch what they can do—sometimes their productivity will double as they hustle to do multiple tasks once covered by extra employees.
Back to my millwork company used as an example above.
When they realized how much trouble they were in the very first thing they did was cut back on overhead expenses—even when the remaining employees were in shock. They had six purchasing agents and cut it back to two; they had twelve project managers and cut it back to six; they cut back in engineering, administrative and even janitorial work.
Out in the shop they cut the workforce back by thirty percent.
Everyone was challenged to do more with less—people rose to the challenge. The rallying cry became evident for all—figure out how to save the business!
This, undoubtedly, is the hardest part of being a business owner. There are, frankly, times when it sucks, particularly when great human beings are hurt. The major difference to remember however is that you, as the business owner, shoulder the long-term results of potential bankruptcy.
Your employees, even your most loyal, will never carry that weight.
If you treat people with respect—even when you must take their jobs away—they will forgive you and be anxious to return. I have seen it happen many times. They will survive and so will you.
Three, go hunting for your cash.
This seems obvious so I hate to throw this out there but lets be more specific.
We talked about shrinking your business in point number two above. Shrinking down your business helps cash flow in significant ways. First, and most obvious, you will be spending less money on payroll and payroll taxes—this is an enormous help to cash flow.
Second, and less obvious, is that shrinking your output temporarily will also bring in cash flow from outstanding receivables. This is a little tricky—I am not suggesting you stop taking sales. What I am suggesting is take only your very best sales, your most profitable sales.
Think of it as starting your business over or resetting your business. You might have to let go of a salesperson and with him/her their book of business. The short run impact is that receivables will come in without having to re-invest them into the next round of material and labor for sales.
This is when you, as the business owner, should be focusing on finding the very best customers—focus on margins, payment terms and your company’s effort required to fulfill the sale. Find your best and start your growth again by trying to find similar great customers.
People might disagree with me on this, but I have seen it work firsthand.
Sometimes a reset can be like a forest fire. The example is extreme but please take the point. Forest fires are devasting and necessary. Nature has the means to overcome these devasting fires and our businesses are no different.
Sometimes a downturn can act as a reset—a chance to start fresh and with renewed vision.
In addition to slowing your growth are shrinking your business, you need to have a systematic way to collect on your receivables. I recommend a weekly meeting with all your salespeople and admins. If that means two people, or even just yourself, then make it happen. You must work on collecting from your receivables. The proverbial squeaky wheel does get the grease—in this case that is cash.
Obviously, you will be calling on people that are late (I would call, email, text relentlessly—every day if necessary…make it a kind of game or challenge), but don’t forget people that are not late.
Remember, if somebody owes you money, they owe you money.
Reach out to people that are in your receivables’ bucket and ask if they can pay early. Of course this has to be handled delicately but I have done it myself and know it can work.
The first trick here is to ask nicely. Start with something like this, “Hey, I know we have not hit thirty days yet but I am cash crunched right now and would really appreciate getting my money early? Will you please help me.”
Some companies in your receivables group, I am certain, will say yes at this first level and first request.
Just so you know I am not crazy, most will say no but don’t stop there. Now, start pressing to get to the next level of decision makers—ask if you can talk to their manager. If that doesn’t work, keep going up. Sooner or later you will find a decision maker and someone who can help you.
Stay at it every day, every day, every day.
I have found, when possible, it is helpful to do this face-to-face. If that is not possible, do it over the phone. Email is the least effective way because it is the easiest way to tell someone know (when you don’t have to see their face or hear their voice.)
The line can always be the somewhat same, “Hey, business is good, but we are starving for some cash flow. I know our product/service is great, you know our product/service is great, we have worked hard to serve you Mr. Customer, can you please find a way to get me paid early and perhaps help me with terms for the next three or four months?”
If you work on this every day, every day, every day, in some systematic process, I can promise cash flow will improve.
What you cannot do is throw your hands up in the air and give up—”Oh well” is not the solution here. Go do something about it and cash flow will improve.
Finally, stretch your payable out just slightly. If you are paying at thirty days, move it slowly to thirty five or forty. Try and add ten days. A few vendors may call but nearly everyone will live with an extra ten days.
You may try and slowly slide them out or even send a form letter to your vendors telling them that you are forced to move them out based on the industry terms coming to you. If you haven’t noticed, N30 is a thing of the past for most of us—even N45. Heck, Walmart is out to N90 nowadays.
The point here is to slowly and delicately slide your payables out—it makes a big difference.
Between all three of these suggestions: shrinking your business, chasing your receivable, and slowing your payables, you will pick up a measurable amount of cash, which we all know is the life blood of your solvency.
This isn’t meant to be forever—it is a stopgap method to survival when the chips are down. When things get better, all of this can return to normal and hopefully your heart-rate will as well.
Four, get up for work every day and do something.
When things get really bad, I can attest that getting up for work and going to work, particularly on Monday, can be hellish. Super high currents of stress and anxiety can be numbing and paralyzing.
The worst thing you can do is become paralyzed and stop working.
I am reminded of a story about a small group of people in small row boat dinghy, rowing from one island to the next. When they leave the shore of the first island, they can see their destination, just a short couple of miles away.
Suddenly, an unexpected storm crashes down upon them. The rain is torrent and the waves are heaving up and down, crashing over the edge of the boat. Utter fear and anxiety begin to attack the group. Some are so afraid that they dive overboard thinking they might be able to swim back from where they came. Others are paralyzed with fear and refuse to oar the boat and begin to freeze to death in the pouring rain.
The heroes do neither, they simply put their heads down and keep rowing the boat. The waves crash around them but the boat cuts through the water with the forward momentum created by the oarsman. All the energy required to row the boat keep the champions warm from exertion and moving forward even when the destination seems impossible to reach.
Despite the terrifying rain and wind the boat, finally, breaks through the storm just in time to see the approaching destination. The experience, though daunting, is won by the courage to take action and row.
The same applies to each of us as business owners. When the storms rise, and they will, we must keep rowing now matter what.
Your people will follow you. They will work hard when they see you work hard. They will have courage when they see you have courage. They will do impossible things when they see you do impossible things.
Not coming to work or hiding in your office all day will not win the day. Get up, get out and get going—you can do this!
Five, pray for help.
I have written this before but make God part of the equation. Do not try to do this alone. Pray for divine guidance and help.
One last story for this point.
I purchased a ping-pong table for Christmas last year. I ordered it from Amazon of course and it arrived in a nice package. When we opened the package, sadly, the corners of the table had been damaged in shipping.
We had to send it back. A new one (way to go Amazon) arrived, happily, a few weeks later, although I had it shipped to work to see if that would keep it from being damaged since it was so big. I did not have an easy way to get it home—needed a trailer which was hard to get because work was so busy.
Well, a week turned into a month and a month turned into several months. Summer came and went—everyone sorta forgot about it—and finally, when school started, one of my teenage boys asked, “Hey dad, when are we going to get that ping-pong table?”
I laughed and suggested maybe next Christmas. Tongue-in-cheek, I told him, “Perhaps you should pray about it tonight…I am going to need some help to get that thing home!”
We make the time to pray together at night as a family. I asked my son to say the prayer. He, of course, acting like sixteen-year-olds do, asked God for help on the ping-pong table, “God, please help dad get the ping-pong table home so we can play with our friends.”
We laughed a bit when the prayer was over and I didn’t give it a second thought.
The next day, out of the blue, my shipping and receiving manager walked unexpectedly into my office and said, “Hey Rich, I noticed this ping-pong table sitting on top of our stocking shelves this morning. I am worried it is going to get damaged and have time this afternoon to deliver it out to your house.”
I about fell out of my chair. Noticing my surprise and wonder, he asked me “Is that alright…you seem upset.” I told him about what had happened the night before and we both laughed.
I know it isn’t always that simple—and God does say no, but, my friends, I have experienced way too many miracles and answered prayers in my life to doubt the reality of God.
He always listens and I suggest getting Him involved in your life. He will listen and He will help.
In conclusion, owning and running a small business or small family business is not for the faint of heart. There will, undoubtedly, be times when you face immense struggle. You are not alone in your fight—others have been there. You will not fail. You can muster the cash and resources necessary to win. Don’t give up; don’t quit. Find the quiet resolve to fight through this and remember to include Divine help when you are down to your last breath.
God’s speed in all that you do. You have my utmost respect and admiration and I hope this little advice will bless your life as you fight onward.