Article: Business Challenges-Don't Hide Your Head in the Sand
By Joseph P. Leverich, CPA
Many businesses are now planning for the coming year.
As I advise and brainstorm with business owners and management, it is an increasingly difficult task given the state of the economy. All of them want to know if we have hit bottom. If not, when will we? How much worse will it get? How soon will the recovery be and how long will it take?
Predicting answers to these questions is like placing bets on an uncertain future. Even bookies in Las Vegas will not give odds. If management is too aggressive, it risks the company's credit, resulting in cutbacks. If it is too conservative, it will take longer for the business to recover. Deciding to make the big bet could result in creditors shuttering the business if efforts are not successful.
In management meetings I have attended, there are broad ranges of thought on the issue that can be broken down into three basic philosophies: the historical conventional approach; the worst is yet to come so how do we position ourselves to scoop up market position approach; and the optimistic approach – we are doing great, the new era is upon us, and we are ready to succeed. No matter with which philosophy you align, there are common challenges for doing business in this economy.
1) Much of the current business is work proposed or orders placed in prior years. New work is tough to win and significantly more competitive. At the same time, management relies on outdated financial statements that do not factor in fewer sales, less gross profit, and changes in competition and customer base.
2) There is talk about the changes in business environment. But no one really knows what it all means. Planning business in the future is based on memories of what was. It would be great if tomorrow resembled years past, but that is unlikely. It is hard to project, discover and do credible research about what the changes will be.
Many of the changes possibly haven't even begun to take place. This means you must be attentive to your industry and market place and make fast changes as business needs dictate.
3) Plan B is understood in business as being the next best alternative. Some businesses critically assess their customer group, vendors, suppliers and competitors, and develop a Plan C and D. They anticipate certain areas to be more unstable and they want alternatives to their next best move. It does not mean they will simply skip from the primary plan to B, C or D, but they have thought through the issues, have an idea of the challenges, and at least, have an outline of the actions to take.
4) Does your business diversify or concentrate on its core? The idea of diversification stems from financial advice for investments, including land. If your business is rock solid, has little or no debt and can afford to invest, there may be opportunity. You have to be prudent, thoughtful, do your research and set a plan.
A while back, I worked closely with a business owner where we did a lot of driving. As we drove, he would point to a business, with which I had intimate knowledge, and would comment on how profitable that industry always was, the ease of its operation, and how management was really racking in the money. I never disclosed the fact that appearance and reality were often far apart.
Concentrate on your core business and discover new and better ways of doing what you already know. Take courses, visit customers, or observe your competitors to learn how your business can change and improve.
5) Critically assess your business. There is an unwritten rule in society that prevents people from being completely honest. When you ask for feedback on your business, most time responses will be sugar coated. Find a way to get a true assessment on the state of your business.
I worked with business owners who were nervous because they could see the writing on the wall. Instead of waiting for the creditor or lender to call they took action. They cut deep, cut their own salaries, cashed in 401(k)'s, and mortgaged their homes. Getting a true assessment and taking necessary action, even though it is painful, with a plan going forward can help mitigate a bad situation.
In one particular case, the owner took the old fashion approach of honesty, integrity, accountability and full disclosure. The bankers were being ruthless until they discovered that everything the owner said was backed up with action. This owner has a hard row to hoe but his company will survive.
Making it through this downturn is going to be challenging. There is no guaranteed path to success. History and experience show us people who deny problems exist, acting like ostriches, are less likely to survive.
Each company's path is different. You cannot follow the action of other companies and assume it will also work for you. Focus on your core strengths, personnel, customer base, strong vendors, and financial strength. This is a surer path than starting new ventures. Your oversight is required to understand revenue, profit, direct costs, and overhead costs, and reducing wasteful steps that will help lead you to success.
Management teams that keep asking why, peeling back more layers, getting to the core of the issues will find solutions they can embrace. Management with integrity, goals, and courage to guide their own company will be the successful business leaders of the future.
Walt Whitman is the originator of this quote, which was changed in the movie Tin Cup, "When the defining moment comes along, you can do one of two things. Define the moment, or let the moment define you."
