Staying Profitable During Difficult Times

Keeping a business profitable is not an exact science. If it was, someone would have copyrighted the formula by now. Therefore, the key to remaining solvent fluctuates, predicated on the industry and the company itself. One infallible way to keep your head above water, especially during difficult economic times, isn’t so much about being smart or experienced, but rather adaptable.

Flexibility can be challenging to a business owner who has operated a certain way for an extended period time. Particularly if the business owner’s way has previously yielded positive results. However, industries change and so must companies in order to survive.

To a business owner, it’s sometimes difficult to see beyond his/her company’s operation. Although it’s important to know the assets and deficits of your own company, keeping your finger on the industry’s pulse is imperative in order to coexist among your competitors. Sometimes things that haven’t even happened yet, but very well may in the near future, should be of your concern. CEOs need to know everything that is happening and about to happen in the industry that are in, otherwise it’s like driving a car with blinders on.

Supply and Demand

One of the cornerstones of business is understanding the concept of supply and demand. However, just when you think you have a grasp on this concept, it could change and then change again. A shift in consumer consciousness, a celebrity endorsement, a recession, climate change, luck of the draw..any of these things could affect the direction of supply and demand. Unless some organization has conducted a conclusive study or market analysis, having definitive numbers for your industry may not necessarily be clear or even available. This may require you to do your own. Supply and demand could also vary, based on region, so take that into consideration during your research.

Don’t believe everything you read. Gather real data based on information from multiple sources in order to maintain accuracy. Once you feel you’ve collected enough information about what products are being bought, what services are being accessed and which demographic is coming up with the money for these products and services, then you can devise a plan of attack that makes sense for you and your company.

Fixed and Variable Expenses

From a bookkeeping perspective, it’s always a good idea to create an annual budget this way you can know what to expect in the upcoming months. Get a breakdown of all your expenses. Your financial statements are a good place to start. See how much you spent on each account last year and use that data to set realistic budgetary goals for the upcoming year. Some of the expenses won’t change, while others will, based on circumstances. You may have to estimate the expenses that are variable. On a monthly basis, see how the company as a whole did in terms of keeping expenses within the guidelines of your budget. If you went over budget, you will have to keep a closer eye on that particular account the following months. Either way, you have to look at these numbers closely. If you don’t, you could be hemorrhaging cash and not even know it.

The Uber Effect

This an affectionate term for instances when a new company enters your industry with a new concept that completely crushes your business model and that of all your competitors, creating a new landscape that becomes the new industry standard. There may not be much you can do to protect yourself from this type of situation other than adapting to the new landscape. Just know that not too many industries are impervious to this and it could happen to yours, so be ready for it.

Partnerships and Strategic Alliances

As times change, some industries have become increasingly more difficult to conduct business in the same manner in which they had in previous years. Some have survived by developing partnerships and strategic alliances with companies that may have complimentary but not competing products and/or services. It doesn’t necessarily have to be a merger. Just a collaborative, mutually beneficial working relationship between two companies. For example, a chocolate company and wine company could combine their products to create an awesome merlot-chocolate sauce. The wine company sells more wine, the chocolate company sells more chocolate and it benefits both companies without either of them having to give up any control or ownership of their respective companies.

Expand or Not to Expand

Bigger doesn’t always mean better. If you attempt to expand your business but also equally expand your operating expenses and headaches along with your revenue, it ends up being a lateral move that accomplished nothing other than making your operation more cumbersome. Knowing when to expand your operation can be critical and is mostly about timing. Don’t expand your business just because your business needs more money. Expand your business because it makes logical and strategic sense. Most expansions don’t pay off right away so unless you have capital reserves to help you get through the beginning period, expanding could put you out of business.

Industrial Changes

As mentioned above, industries change and when companies in those industries don’t change along with the times, the outcome is rarely favorable. When Home Depots started opening up on every street corner, local mom and pop hardware stores got squashed. When Costco started making huge, relatively inexpensive cakes that could serve 50 people, smaller bakeries who counted on people spending $80 on a party cake found their sales drying up. The only ones who lasted were able to offer something unique, convenient or cost effective.

Prognosticate

I’ve mentioned in previous articles the importance of business owners having the ability to predict the future. Obviously, no one can but intuition and strategic planning can save a company from becoming obsolete. In order for you to be smarter than everyone else, including your existing and future competitors, you must know what they know and more. Educating yourself on industry trends can give you a competitive edge over other CEOs in your field who aren’t paying close enough attention to the writing on the wall.

Price Adjustments

Being strategic with your pricing structure is important in order to stay both competitive as well as solvent. Again, this is dependent upon your industry and your product/service. In some cases, it’s easier to sell more of something for a lower price, making up for the smaller margin with an increase in volume. Take out a calculator and determine how much more of your product or service you have to sell if you reduce the price in certain increments. Adjust these numbers to a point where they make sense in your application. You can also figure this in the opposition direction by raising the price and determining how much less you have to sell to generate the same revenue.

Be Creative

Creativity can be a game changer if done correctly. Think about what motivates your customers to spend their money. In some cases, it could be convenience, value, service, etc. Once you determine what the catalyst is in your business, you have a good starting point. Then do your best to give your customers what they want. If you haven’t thought about this, now is a good time to start. Understanding the psychological aspect of selling your products/services is the first step to actually doing so.

After you think of creative ways of selling your products/services, then let your creativity go to work on your operating procedures. Have you ever considered whether you are operating in the most efficient manner possible? Start with analyzing the systems you have for every area of your operation. The goal here is to cut out waste that could be draining your business of excess cash.

Being creative is such a huge part of operating a business successfully but it will really require you to think outside of the box. There could be ways in which you package your products/services to make them more appealing to your customers or to give your customers an incentive to buy more at a time. Customers love value or at least the perception of value.

If you haven’t done so already, think about your customer’s entire experience with your company. What do they see, hear or smell as they first walk into your establishment? How are they greeted? What is the process leading them up to a sale? How do they feel once the sale is completed? Is there an after sale process? What can be done at your company to improve upon all of these customer experiences?

Getting a business to a point where it is profitable can be an extremely challenging processes. Once it is profitable, keeping it profitable is the next challenge. For more information about keeping your business profitable, please call Illumination Consulting at 1-800-619-3734 or visit www.IlluminationConsulting.com.