Dig Deep to Unearth your Real Financial Picture

Particularly during economic downturns or periods of change, it's important to conduct a real financial reality check so you can take necessary actions to improve your fiscal situation and put monitoring systems in place. Every financial activity – whether it is paying bills, collecting on invoices, borrowing, developing investor offerings or setting budgets and sales targets - should be in your head every second of the day.

For starters, get good information to sit down and study. Pull the latest accounting reports, cash flow projections, budgets, AP and AR reports, loan statements, bank statements and anything else that may be relevant to your financial picture. As you dig into this information you have 2 goals:

1. Get a grip on your REAL financial situation.
2. Understand issues that may impact your financial stability so you can deal with them.

What specifically should you look for?

Global trends. These days, you can't run a company without thinking globally. That means continually trying to figure out which new factors or variables will likely affect your financial model and adjusting your strategies accordingly. While you can’t control problems that have cropped up and that may continue to develop at various hot spots across the global economy, you can take proactive steps now to shelter your business from unwanted consequences of a worldwide downturn. After all, if your company's underlying financials are strong, you should be able to capitalize on competitors' weaknesses and continue to grow, even in adverse economic times.

Cash flow problems. Happiness for a business owner boils down to one simple thing: positive cash flow. Good business owners think about cash flow every day. But there are a lot of people who forget (especially in boom years) that the business world is cyclical and that you must have money to make money. The best thing about volatile economic conditions is that they remind managers to refocus their attention on the basics. Look ahead, understand the marketplace, put contingency plans in place for potentially painful scenarios, and remember that it could take as long as 12 to 24 months for the full ramifications of today's economic problems to hit your business.

AP/AR issues. If there is one single point of vulnerability in most companies, it's accounts receivable. That's because entrepreneurial companies almost invariably make the mistake of paying much more attention to making sales than to collecting receivables. That's never a great idea, but when the economy slows down and more customers start taking longer and longer to pay their bills, the result is a cash crunch. Be very selective about whom you give credit to and how much credit you give them. Remember that you don't want just any customer! You want the kind who pays you and pays you promptly. Keep a good grip on your collections practices: bill promptly, follow up regularly, track results, get involved in the process when necessary, and cut off the juice to people who don’t pay. As for accounts payable… never pay before you have to, plan ahead for bills and payroll expenses, avoid interest fees and late charges, communicate with your suppliers and run reports on AP every single week so you know where you stand.

Strong banking relationships. Now is the time to step back and take a dispassionate look at your credit picture and then address any problems before they come back to haunt you. Are you in a position of liquidity? Can you identify nonproducing assets that are leveraged and find ways to reduce that leverage? How much of a credit line do you truly need? In far too many cases, entrepreneurial companies wind up borrowing because of poor cash flow practices and not out of true need - and that makes bankers nervous. Another point to keep in mind when evaluating your banking relationship: does your banker feel calm about your company and its current condition? Here's why that matters. An anxious, discontented loan officer is likely to ask you to pay down your credit line at the first sign of difficulties, which are practically inevitable in a global downturn. You don’t want to get caught in a position where your banker has expectations that you can’t meet!

Poor practices you can fix swiftly. When business conditions worsen, entrepreneurial companies sometimes get sloppy with key reports. They either compile financial data late (perhaps because they don't want to face the bad news) or they ignore the data they do have. Crack down on such situations immediately. Look for other early indicators of financial stress. Are you paying your own bills so late that you're getting penalized? That's a sure sign of bad news. Is your staff getting wind of slowing sales and lean bank account balances? If so, talk openly about where you are and what you’re going to do so that they can relax and get back to the business at hand. You ignore bad financial habits to your detriment.

All businesses exist to make money. To grow your company you have no choice but to become a financial guru: researching, tracking, studying, sharing and using financial data to guide decisions.

Rain-Making in the Desert

Some business owners tend to sit on their hands during an economic downturn - waiting for the market to rebound before they make a move or spend a dime. But although it may seem counter-intuitive, recessions are a great time to get back to the basics of business development and marketing.

As tough as recessions can be on your pocketbook, they do free up space to think and plan - two things that most companies don't do enough of!

If you want to use a short-term lull to drive long-term success, what should you be focusing on?

Relationships. In a down economy it's more important than ever to take care of the customers you have, reconnect with customers you've lost and encourage referrals. By taking every opportunity to interact with people you already know, you can begin to fully understand what needs are in the marketplace and how you can fill them. And while you obviously want to get more money from your connections and leverage their Rolodex, you also need to focus on providing real value and gathering crucial information that will help you set your business up to succeed.

Networking, customer satisfaction calls, face-to-face meetings and hosting events are just a few ways to show your customers, suppliers, vendors and partners that you appreciate them and are concerned about providing thoughtful, personalized service.

Education. It can be hard to reconcile yourself to giving anything away for free, but freebies today drive sales tomorrow. Recessionary economies make consumers cautious, so you have to prove yourself before they will buy from you. Doling out valuable tidbits of information, offering instruction for do-it-yourselfers and having some products or services available for a free trial can create the confidence to earn real purchases.

Now is the time to do whatever it takes to build rapport and trust. Host seminars, offer low-cost classes to share knowledge with the public, allow people to sample your services for free and talk with anyone who will listen about your area of expertise. People do pay attention to companies that demonstrate that they care! Now is not the time to try and monetize every aspect of your business, rather you should be educating consumers on why they should buy from you both now and when their financial picture improves.

Education applies to your internal systems as well. Brief periods of inactivity are great times to mentor your staff, conduct training, implement better processes and upgrade equipment. That way when business picks up again - you're ready!

Market Strategically. During times of plenty marketing efforts can get sloppy. You buy any ad that a salesperson approaches you about... you send out mailers, emails and newsletters willy-nilly... budgets fly out of control as you sponsor events, join professional organizations, and take everyone you know out for lunch.

Economic downturns force companies to make responsible choices about how to spend their precious business development dollars. Go back to your strategic plan and remember who you serve and why. How can you connect with small target audiences on a personal level - and cheaply? Trim the fat from the marketing budget and drop any activities that don't get stellar results.

Most of all, don't stop marketing completely or trust your gut on where to put your marketing dollars. Tracking is the best way to demonstrate how marketing efforts pay off. In tough times many owners and managers think that the first thing to do is cut back on marketing expenses. However, providing numeric results and reporting on success stories are easy ways to underscore the importance of marketing/ business development and demonstrate ROI for the activities you keep.