A group of business owners recently attended a workshop on doing business in a recession. The facilitator told them to cut costs, cut employee hours and raise prices.  When it was all over, many participants asked themselves and each other, “Okay but —- how?’.

As they talked about this, I could hear frustration in their voices. And could see fear on their faces. Or maybe I was projecting my own feelings – re-living some tough times of my own.

Yes – I’ve had lots of experience – not with a recession quite like this – but with major budget crunches. Very challenging ones. Lots of perseverance needed. And creative problem solving. And teamwork. Resulting in lessons learned that I’d like to share here – hoping to help anyone hoping for help.

It’s important to note that I am not an accountant, a banker or financial advisor. The information in this article comes from thirty years of experience as a manager, officer, coach and consultant for businesses across a wide range of industries. It is not intended to replace the expertise of a financial professional, though it could be helpful in preparing to work with one.

So here they are.  4 tips –  actually I believe they are musts for managing tough times. And good practices for good times as well.

First – I’ve seen enough happy endings that I no longer view the tough economic situations I’ve faced as  unfortunate times.   I actually feel quite fortunate to have had them because they have taught me the importance, the value of doing something that many people never do –

And that is to take charge.

I can’t help it. The economy is terrible. People are losing their jobs. No one is hiring. The stock market is down. No one is spending. The sky is falling. I can’t believe this is happening. Woe is me.

A little venting can be helpful in the short run. So I say – vent if you’d like about the economy, unemployment, the stock market and other things you can’t control.

Then – quickly shift your focus to what you can control – like your reactions to the economy, unemployment, the stock market, etc – and the actions you take as a result.

This is hard. It’s a lot to figure out. Decisions to make. Actions to take. Discipline required. Accepting responsibility for all of it.

No wonder so many people go from venting to complaining to blaming. Totally absolving themselves of any responsibility. Becoming frozen in their current situation. Robbing themselves of the opportunity to affect their future.

Sound preachy? True confession…it’s a pep talk for myself as much as anyone else. Because….repeat of paragraph before last. All of that is very hard.

But I like it better than the alternative of being frozen and getting robbed.

If you are like me on that and are ready to take charge, read on.

If you are willing to take charge but aren’t sure what to do after that,  then how about taking a leap of faith  with me? At least until the end of this article?

Are you with me?

Good.

Here we go.

Regarding suggestions from the workshop to cut costs, cut employee hours and raise prices – I suggest a slight but important modification. Let’s just focus on increasing revenue and decreasing expenses so that we get the result we want and need from that good old fashioned, back-to-basics business formula: Revenue – Expenses = Profit.

On the revenue side of the equation, I will not address the suggestion of raising prices because there are so many factors – such as costs and competition – which vary from industry to industry and from region to region. Even so, just raising prices will not “fix” revenue issues for most of us.

I believe a more powerful suggestion is to remember the man who sold hot dogs. And to learn from him about the importance of staying out there.

How?

Be visible. At networking events. At local Chamber events. At Rotary Club. Showing people you are alive and well. Still providing valuable products and services.

Stay in touch with customers.  Even if they can’t do business right now, stay in touch.  They are under pressure too. Make things easy.

• Like the tire dealership that sends a postcard to remind you it’s time to rotate the tires.
• Or like a small group of stores that sent an invitation for holiday cocktails with an enclosure card offering 15% off purchases made during that time.
• Or like the office supply store that announced a special sale for special customers during special hassle free hours.
• Or like the wine bar that e-mails an announcement every week – announcing their events for the weekend.

Take charge.

Stay out there.

Do even more than that and take the lead of North Carolina Governor Beverly Perdue, who promised in her inaugural speech this weekend to “act boldly”. She said: “Now is not the time for us to hunker down. We cannot just cut back.”

Act boldly.

How?

• Like the car salesman who took fleets of new cars to a nearby upscale club…offering test drives to members as they came off the golf course.
• Or like Hyundai’s Assurance Program. In the January 5, 2009 issue of USA Today, there was a report that Hyundai is: “hoping to tackle consumer confidence and spur first quarter purchases with an aggressive incentive program that will let people return their vehicles if they lose their job or undergo an adverse life occurrence such as physical disability of self-employment bankruptcy.”
• Or like Susan – the heroine in one of my favorite customer service stories of all times. A group of us liked to shop at dress shop called Foxglove. They were great at knowing our sizes and what was in our wardrobe and would periodically call us to let us know about new arrivals that would be “just perfect” for us. But we all traveled a lot and found it hard to get in there. About 6:00 one evening, after our doors were locked, I heard a knock on my office window. It was Susan, one of the managers from Foxglove, with a rolling rack of clothes she had been holding for us. She rolled it right into the conference room and we all went in to try things on. It was like playing dress up. So much fun. We laughed. And bought clothes. And were forever impressed with Susan’s commitment to us. Not surprising, Susan went on to start a business with her mother and sister. Susan, Frances and Lee Gravely were the founders of VIETRI, Inc. Susan is the CEO.

Take charge.

Stay out there.

Act boldly.

By doing all three, it’s possible to have enough influence on the revenue side of the equation that you make the desired profit without cutting expenses.

But if we are acting boldly, we won’t take that chance. Bold action calls for a hunker down plan.

Hunker down.

How?

The most important step in the development of a hunker down plan is the first one which is to set a specific goal. A dollar amount by which you would like to reduce expenses.

This is very important. DO NOT make the common mistake of setting out to cut “as much as possible” instead of starting with a specific goal. If you question my reason for that, ask someone to reach as high as he can on the wall. Mark a spot on the wall that is about six inches higher and ask him to reach it.

To determine your expense reduction goal, start with that good old fashioned back to basics formula we referred to earlier: Revenue – Expenses = Profit and use it to play “what if”.

What if revenue stays the same? What if there is 10% decrease in revenue? What’s the worst case revenue scenario?

If nothing is done to reduce expenses, what will profit be at each of these revenue levels?

What is the difference between these projected profit levels and the profit levels budgeted or expected by you and your stakeholders (boss, partners, investors, bankers, etc)? (footnote1)

Let’s use Sally’s situation as an example.

After going through the “what if” exercise, Sally determines that she is $100,000 short of her profit goal if revenue stays the same; $150,000 short if revenue decreases by 10% and $250,000 if her worst case revenue scenario comes true.

Acting boldly, she sets an initial expense reduction goal $275,000. This way, she is covered even if the worst case gets worse. She realizes this is an aggressive goal and has no idea where she will find $275,000 worth of savings. But she figures – what can it hurt to try?

She begins an immediate search for ways to reduce expenses by reviewing her financial reports line by line.

Always preferring to bring her boss (or COO or bank) a solution whenever she brings a problem, she is tempted to find the $275,000 before telling him about her potential shortfall. But this is a huge negative surprise and financing might be needed, so she knows that sooner is better for sharing this news with him. Plus the last thing she wants to do is develop and implement a hunker down plan – maybe even make the $275,000 goal – only to find out that there was an error and she really needed to be more.

Sally hates delivering bad news – but in the name of taking charge and acting boldly – she goes to her boss and explains the situation and the actions she and her team are taking to increase revenue and decrease expenses.

Her boss is disappointed by Sally’s news. But he is impressed with the way she is taking charge. Impressed that she is not just hunkering down. But also staying out there. And acting boldly.

And he supports her wholeheartedly in her pursuit of a happy ending.

Wonderful work by Sally. But she can NOT stop here.

There is still important design work to do. Plus the challenge of implementation.

But before we get into that, let’s stop for some absorption time.

*****

footnote 1 – This exercise can be done easily with most financial software packages. If you don’t use one, use a spreadsheet program to make the math faster and so that you can easily make changes as the situation plays out. If you’ve never done this – just list all your expense or line items listed down the left hand side of the page and enter varying sales levels across the top of the page.

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