by BJ Lippert, CPA and Rex Miller, CPA, Partner | Team Members of the Manufacturing & Distribution Services Group
The economy is rebounding. Certain industries have realized greater resurgence than others. Certain companies have experienced better results within a specific industry than others. The general consensus, however, is that most business owners and employees can breathe a collective sigh of relief and return to business as usual. For most companies, a sigh of relief is in order, but beware of business as usual. Usual may no longer be good enough.
As your company rebuilds from the recession, be sure to spend wisely, save wisely, and properly nurture the right business relationships.
If your company was able to weather the storm of the recent recession, consider yourself fortunate. Many were not. When companies collapse, an opportunity exists for surviving competitors. Generally, salvageable components can be procured from even failed businesses; machinery, real estate, materials. Good deals can present themselves in liquidation proceedings. A knowledgeable employee base may also become available. Perform the necessary due diligence, but do not be afraid to benefit from another company that has not fared as well as your own. Another wise investment is in your current employee base. Rarely is an investment in a devoted employee’s education misspent. Help your employees succeed at their trades. Offer to pay for sales training courses for your sales staff. Provide company time for all employees to network through trade organizations. This will provide both tangible benefits through skills learned, and intangible benefits in the form of increased dedication and employee morale.
One of the greatest contributing factors to the recent recession was our economy’s dependence on debt. Although it can be argued that a certain level of leverage must be utilized by companies in order to grow, most could benefit from the reduction of a substantial portion of existing debt. If you have some spending flexibility, consider paying down your debt. This will lead to reduced interest paid to the lending institution and a reduced dependence on an outside organization for your own company’s success. Avoid the trap of increasing spending to meet an increase in free cash flow. The season tickets that were deemed expendable last year are likely still expendable even though you can now afford them again. Be cautious in your rehiring practices as well. As difficult as it may have been to sever ties with employees over the past couple of years, it is likely that several of those employees could have been terminated prior to the recession without a break in service to your customers, and with minimal impact to your company internally. Though there is a human element to your employee base, if your company is not profitable and able to support that base, it could end up cannibalizing itself resulting in a lose-lose situation for the company and its employees. Honestly evaluate your needs before taking on the burden of additional salaries.
Properly Nurture the Right Business Relationships:
Resist the urge to cut prices in order to generate new business. Your company has survived the recession under its current pricing model. It should be able to survive an economic rebound at those prices as well. If your loyal customers ask for price concessions, offer volume discounts, quicker shipping times, or other benefits while maintaining a price that will allow your company to remain competitive and earn sufficient margins. Much like hiring too many employees, not demanding a high enough price will eventually destroy your company from within. If your customer base has remained through the recession, it is likely to remain post-recession. Find ways to develop those relationships and maintain your margins. While it is sound practice to maintain your pricing structure, not all of your vendors will adhere to this practice. If you have a relationship to leverage, ask what options exist to reduce your costs. Honor the relationships you forged through the recession, but be aware that an improved economy offers options that may not have existed in recent past. If you have utilized a vendor out of necessity rather than desire, research other options – you may have more than you previously thought. Lastly, turn yourself into an asset for your customers and your suppliers; stay apprised of recent business developments, particularly those that affect their businesses and yours. Join trade organizations. Build relationships with others in the community. Share contacts and referrals back and forth. The more you demonstrate a sincere interest in improving your business partner’s company, the less likely it will become for the relationship to turn into one of convenience based almost entirely on price.
Is the economy rebounding? We think so. Be creative, be diligent, try new things. Don’t go back to business as usual. We’d love to hear how you have creatively managed through the last 2-3 years. Give us a call!