Recession Business Finance Tactics

During tough economic times, finance is a huge challenge for business owners. In the “Going Forward” section of the January ’09 Entrepreneur Magazine, Mark Hendricks quotes some sobering statistics which frames up the extent of the recession we are experiencing:

– During the Second Quarter of ’08, 65% of bank senior loan officers stated they recently tightened lending standards for small businesses.

– In August ’08, 49% of business owners reported cutting back and by October that number grew to 69%.

– Sales Growth for businesses in all sectors fell from an 8% average increase over the last five years to 6% for the year ending October ’08.

Our best advice to meet the challenges is have a well developed and implemented Business Plan and Financial Strategy which proves your Cash Flow Model and determines which financial sources and structures fit that Model. With your Funding Business Plan, Loan Package and Investment Overview in hand, here are some real world funding options and strategies to consider when Lenders’ purse strings become increasingly hard to access:

1. Networking: Increasing your Networking activities through morning executive breakfast events, trade associations, Chamber of Commerce events and Rotary/ Kiwanis/ Lions Groups can be a great way to find suitable, local, private money. Local investors are much more approachable in hard times as they have a connection and understanding to the area and your track record. Other business owners in these groups, associations and events can be extremely helpful in finding suitable private money.

2. Supplier / Trade Finance: According to Rosalind Resuick, CEO of Axxess Business Consulting, no outside party has a bigger interest in your company’s success than your trade partners and suppliers. Having your supplier as an Equity Partner can be very advantageous when you are having difficulty making payments or want to quickly develop a new market. The participating Equity Stake is assigned to your past trends, present and future orders. Start-up Consultant, Joe Fulvio, suggests your Business Plan “show not only a direct return on investment, but also the value of future business to be gained”. By making your supplier a partner in your business, the supplier is better suited to understand your Finance needs

3. Lease Finance: When times are tough and your cash is tightening, Leasing can be the answer. Small deposit, lower payments and flexibility are often associated with Lease verses Buy Terms. At the end of the lease, you can easily upgrade equipment and roll into the Lease Payments so your out of pocket costs are much smaller than a typical finance loan.

4. Community Bank Loans: Amy Loera, owner of Tio’s Mexican restaurant chain, was denied at nine different banks, for a loan to open a new restaurant, although she ran a very successful business. These Lenders cited the Nation-wide downturn of restaurant sales due to the current recession as the chief reason for the loan declination. There is no doubt a year ago, these banks would have lent to her. Instead of throwing in the towel, Ms. Loera turned to a local, community lender, Arrowhead Credit Union, and she was approved for a $643,000 loan. What was the difference? The Credit Union was based in her business region, and she could make a strong case for the health of her restaurant chain.

Reasons Ms. Loera cited for her success in obtaining her expansion loan:

1. Low overhead costs

2. Reasonable Prices

3. Family-Style restaurants picking up the slack from people by the Fancier establishments in the area.

4. Smaller, localized lenders are typically in better shape during an Economic Downturn

5. Community Banks are more cognizant of the local economy’s health and vitality

6. Larger / Regional / National Banks are more reliant on Credit Scores and cookie cutter Applications. Local Banks rely more on a Business Plan.

7. Niche Market: Suburban market that likes an affordable meal at the end of a busy day

8. Historical Financials showing track record

9. Debt-free

10. 12 month Realistic Projection for the new restaurant

11. Comprehensive Business Plan; every detail about the business

12. Received approval from the Credit Union due to:

a. Experience

b. Existing locations cash flowing well

c. Affordable meals in a recessionary environment

d. Detailed, well-thought-out Business Plan

The Inside Story: What the Local Bank Looks for:

1. Not Credit Score Driven

2. Look behind the scenes of the business

3. Cash Flow is Key: An important indicator of the ability to pay off the loan.

4. Believable, forward-looking Cash Flow Projections for the new business. Realistic Financial Statements.

5. Provide Best & Worst Case Scenarios on your Financial Projections

6. Small, Community Banks assess a business loan on a case by case basis. This is a huge advantage over Regional Bank Loan decision making, especially, in an economic down-turn.

7. In recessionary times, certain industries will be hit harder than others, like Construction Companies or Auto Dealerships; therefore, it is very important to have a well developed Business Plan and a forward looking Strategic Plan that includes a well researched 12-18 month industry outlook, based upon a believable Marketing Plan.

8. Small Bankers can see successful pocket areas in a struggling local economy. These pocket areas often have a Strong Niche Marketing Offering

9. Financial problems are best disclosed to the bank early on so a mutual solution can be implemented

10. Small Banks do loan to Companies showing past financial “hiccups” if they can show they were proactive and overcame the issue

In my next article, I will review what businesses do well in a recession and provide more recession business tactics so you can succeed, despite this lousy economy.

The Top 10 Businesses to Be in During a Recession – Real World Recession Strategies

Top Ten Businesses in a Bad Economy

According to One Coach the following businesses tend to succeed during a recession:

1. Business Coaching

2. Business Networking

3. Alternative Fuels

4. Environmental Services

5. Health Care

6. Nail Salons

7. Discount Retailers

8. Luxury Products

9. IT and Technology Services

10. Credit and Debt Management

It is debatable whether Nail Salons and Luxury products truly do succeed in a recession. Item #9 in my view should be ranked higher in the list as businesses utilize technology to become more efficient and profitable during tight, recessionary periods. #3 and 4 are great forward looking businesses, but they carry a premium and subject to positive government policy and regulations. Just know you need to be prepared for the long haul with Alternative Fuels and Environmental Services as demand will ebb and flow directly associated to the whims of the White House and Congress. In addition, during down economies, you will need to aggressively sell how much these businesses can save consumers and businesses money in a significant, quantifiable way, since the offering will be products and services that carry a price premium. Glad to see my business at the top of the list! Businesses find out they need a business consultant and coach during downtimes-the smart ones know this before they get in trouble!

Real World Business Recession Tactics and Strategies

Some areas which Sara Wilson keyed on in the December ’08 Entrepreneur Magazine Article, “Trend: Economy”, which makes a lot of sense in this Economy:

1. A Business Idea that is Working right now: CouponMom

a) Stephanie Nelson started a website that teaches consumers how to save money buying groceries using coupons.

b) 2008 Revenue has doubled and the site had over 1 million unique users in July.

2. Local Scope: Due to financial pressures and an uncertain economic outlook, consumers are spending more time at home and closer to home.

a) Consumers are frequenting local restaurants and entertainment establishments, which are more low key and less expensive.

b) Instead of traveling to Disneyworld, families are utilizing “staycations”, enjoying local area parks, lakes and beaches.

3. Green Business: Organics are and have been exploding in growth and the outlook is very good. People want to eat healthy and feed their family healthy food even when things are tight financially. Green conservation is another growing business niche.

4. Web Business: Why spend large start up dollars on a brick and mortar Business, when you can run the same or similar business from home, utilizing the internet?

a) Web businesses are very competitive and the learning curve is significant if you aren’t familiar with web marketing techniques.

Sara Wilson had another good article, “How are Franchisees Dealing?” in the January ’09 Entrepreneur Magazine that interviewed four different franchise business owners on how they were dealing with obstacles during this current economic slump:

1. Floyd’s 99 Barbershop: The franchisee, Jay Palmer, couldn’t find a loan for a new store. He tried using his home and his parent’s home as collateral and no luck with banks, including trying to obtain an SBA or Corporate loan.

a. The Solution: Mr. Palmer found a personal investor (Angel Investor). The investor came into the shop for a shave and a haircut when Mr. Palmer wasn’t around so he could get a good feel for the business. He ended up investing $150,000 after seeing a steady stream of happy customers and happy, energetic employees. This was a great move on Mr. Palmer’s part, using a track record of success and clearly showing a sharp investor the real deal behind the potential success of his future business opportunity: great service, great product, happy customers and content, energetic employees. In just one site visit and the positive experience with the business’ services, the investor was ready to supply the needed capital even after multiple bank turn-downs.

2. Kitchen Solvers: Franchisees, Carrie and John Borden Kircher, customer niche based changed. Their customer market became price orientated, and the business offers premium kitchen and bath remodeling. Leads dropped 19% and sales are down 25% over the last two years.

a. The Solution: Their solution is rebrand their vans, get new signs; increase letters to past customers; leave a gift with a customer after a job is complete; and working with their franchiser on the operational side of the business. Ok, as a Business Consultant I am going to give my two cents on the Borden Kircher’s proposed solutions:

i. Rebranding Vans and New Signage: In my experienced opinion, this is a waste of money. I would instead spend this money on a new Marketing Plan which concentrates on two areas:

a) How to target higher wealth clients in the market area.

b) How to sell price based customers on why premium services and products can save them money in the long run. Once the new Marketing Strategies bring in profits, then it is a good time to upgrade signs and re-brand with those growth dollars.

ii. Increase Letters to past clients: Ok, but what is the purpose of a letter? The time to ask for referrals is the day the job is completed. When the client is happy with their new Kitchen or Bath. A newsletter with examples of completed jobs and customer testimonials, along with a preferred customer discount coupon, may be more effective in obtaining an add-on sale with an existing customer. A newsletter can also be a forum to introduce other services to current customers which they may not be aware, such as, having an article on the Design Services that Kitchen Solvers offers. The most cost effective, normally highest bang for your marketing buck, are continuing sales to existing customers.

iii. Leaving a Gift Basket with a Customer Post Job Completion: The Borden Kircher’s are looking to implement better customer service and they believe customers are looking for the “Wow” factor. Leaving a gift is not customer service, and the wow factor should be as a result of a beautifully completed job. A Gift Basket will get neither. Customer Service starts at the Sales and Design Stage and continues throughout the job. The business owners showing up on the job to check on things and talk with the client is good customer service. Meeting with the customer in person after a job is completed to go over everything and ensure the client is happy is good customer service (and a great time to drop off the latest company newsletter and ask for several referrals). Customer Service is showing up on the job when the client is unhappy with the contractor’s work. This type of highly motivated customer service will create the Wow factor for Kitchen Solvers, along with a quality, premium, beautiful look in the finished kitchen or bathroom, leaving a lasting impression.

iv. Work on the Operational Side with the Franchisor: This is one of the fantastic advantages a Franchisee can leverage: utilizing the experience and resources of the Franchisor. Some Operational Tips I would make as a Business Consultant:

a) Analyze product costs and see where you can cut costs yet still retain a premium, high-end image with quality products and value added results.

b) Work on a Supplier Business Plan which strengthens your relationship with your suppliers, tapping their assistance, experience, resources and expertise to bring better product offerings to your customers.

c) As previously stated re-work the Marketing Plan, along with making the resulting key changes in the Strategic Plan to better anticipate future market trends and adapt operations more proactively to those indicating trends.

d) Examine the Operational Aspects of the Business Plan to see how you can better bridge the gap between the design sale stage and the install. Customers are more prone to pay a premium for a smooth, effective transition from concept and design to install and completion.

e) Incorporate add-on selling into your Strategic Sales Plan for existing customers. A happy customer is more apt to stick with the same company to continue remodeling, so be sure to have a built in process which engages customers and shows them other remodels you can accomplish for them. Add-on selling takes very little marketing cost for a big return and ties in well with solid customer service.

f) Have the Franchisor witness some sales and installs to see if areas for improvements can be identified. Incorporate these improvements into your Business Plan.

b. My Best Advice: Find a way to sell a premium product and service to higher wealth clientele and offer a product/ service which has a premium look and finish, yet appeals to price conscious customers. Search for innovative suppliers who can help accomplish this mix. Follow-up this new business model with strong customer service throughout all the sale and install stages. Concentrate on a post-completion walk-through which asks for referrals and start the add-on sale process. Follow up with a monthly newsletter which contains add-on ideas and offers a loyal customer discount. The Borken Kircher’s have a lot of challenges in this economy, and as they said, “you can’t just sit around waiting for people to call.” Use this rough patch as a learning experience in staying ahead of changing market trends, analyzing costs and making new plans for future success. A premium product + great customer service + a quality install + great value = a viable business model in any economy. Just don’t wait two years to make changes.

3. The Melting Pot Restaurant: The challenge Franchisee Michael Frampton was facing during the Real Estate Crash in California was establishing the restaurant in a new shopping center when 10 other centers in the area were all opening at the same time. On top of this significant challenge, property taxes went up from $500 a month to $2,500, which meant $2000 a month cost comes straight off the bottom-line, never being budgeted for.

a. Solutions: Mr. Frampton shows why he is going to be a successful business owner. Clear steps and strategies to overcome the current situation:

i. Loyalty Cards: This is a fantastic move. Appreciate your regular customers during the hard times, and they will keep your doors open.

ii. Mass Mailing: Targeted within a 10 mile radius as there are so many competing restaurants in the immediate area. Targeted mailing is measurable, which is key during tough times.

iii. Analyze where you are spending money and the areas which can be controlled (not necessarily cut): Mr. Frampton actually saved $500 a month in focusing on linen costs for towels used to clean the restaurant. He also analyzed energy cost: when they turn on equipment and the length of time it’s used. A third major cost area for restaurants is staffing, which Frampton cost analyzed as well.

iv. New Business Opportunity: He started opening for lunch on Sundays. Why? Probably because customers come after church with their families to enjoy an upscale meal, as do the late weekend risers searching for a good brunch close to home. One of the best analyses a restaurant can perform is looking at the average customer flow, food sales, alcohol sales and costs for each day of the week it is open to determine what days are best to be open and the reasons why. Armed with that information, you can adjust staff schedules, open hours and food prep costs much more strategically. Mr. Frampton apparently thinks the added costs of being open for lunch on Sunday is worth it, based on good cost analysis.

4. EmbroidMe: Wendy and Todd Diskin own a franchise that specializes in promotional solutions for businesses, which includes decorating apparel and screen printing. Their challenge has been rising costs from their suppliers. They have experienced a 5% increase in the Cost of Goods over the last year.

a. Solutions:

i. Competitive Pricing vs. Solution Based: The custom product industry is price competitive. With rising costs, the Diskin’s have provided a more solution based approach so the buying decision isn’t just made on the quote. For instance, if one of their customers is trying to increase readership, they figure out how EmbroidMe products or services can help the client achieve that goal and come up with a program to do so. Then the decision becomes one of “risk and reward and ROI instead of price…” Selling solutions alongside your product and service offerings is a way you can separate your company from the competition and still retain premium pricing in a price based market.

ii. Continuous Marketing Software: This program sends letters and emails so the Diskin’s can “stay in front of their customers on a regular basis without a ton of effort….” This software program keeps the company engaged with customers, giving EmbroidMe first opportunity to make another value added sale or track how customer market trends may be changing.

iii. Vendor Relations: Leveraging a strong advantage franchises have, EmbroidMe Corporate negotiates the best pricing and strategic relationships with suppliers for their franchises. This is a huge advantage as it is a time consuming task and volume pricing from a Global Corporate level is much more advantageous than negotiating on your own as a single business unit. So it is apparent that although COGs has risen, EmbroidMe is still very competitive and successful, even in a recession.

Conclusion:

This article used real world examples and combined it with the business experience of a 20 year veteran Business Consultant to provide you with real world examples and strategies to use in order to start, run or adjust a new or existing business in a struggling economy. In a recent article I discussed Recession Survival Planning, and how it is a must and utilizes good Strategic Planning, Diversification Techniques, Contingency Planning and Cost Management. In another article I discussed various Recession Finance Techniques for your business which are particularly good during a Recession, which include Networking, Supplier Finance, Lease Finance and Local Business Loans. To conclude in this article, I identified certain types of businesses which excel in an Economic Downturn and why they are successful. My best advice for starting or operating a business during Recessionary times is as follows:

1. This Recession will have an impact for at least 3 years. So keep that in mind when planning for your business.

2. Track record, Experience, Niche Market Identification and Cash Flow are keys in raising funds for your business.

3. Solid, Comprehensive Business Planning, along with realistic, accurate Market Planning and Financial Forecasts are very critical during challenging economic times. An effective Strategic Plan is integrally important in bridging the gap between a Marketing Strategy and Realistic Financial Forecasting.

4. Out of the box thinking: For Brick and Mortar Companies, key on strong local areas and/or utilize the web to efficiently bring a product or service to the market.

5. Price Competitiveness becomes less important if you sell value-added business solutions to your customers and have tight controls on costs.

Success in Business – Is Your Business a Vehicle to Financial Freedom Or to a Lifetime of Hard Work?

There are many reasons why people may consider starting their own business:

- A vehicle to create wealth.
- The potential to build a business and sell it at a significant profit.
- The freedom to be your own boss.
- The freedom to work your own hours.
- The potential to be flexible around your specific circumstances.
- The desire to do your own thing.
- The power to be creative.
- To be free of the limitations of working for somebody else.
- To reap the rewards of your own hard work.

For many, these reasons become a reality. However, for many others, having their own business is one of hard work and little reward compared to the amount of time and effort they put in.

I believe it is important to set your business up so that it operates as a separate being to you. Your business must run whether you are there or not.

Think about being an employee. If you are sick for a day, or take a two-week holiday, the business doesn’t just shut down. Another employee, would cover for you while you are away. The challenge for many small or even medium sized business owners, is that the business just cannot seem to operate without them. They are the business. This is certainly not a formula to enable you to become financially independent or to spend more time with your family. The business may be generating income, however this flow of income may stop as soon as your activity stops.

When I work with clients who own their own businesses, I get them to think about how they can generate passive income through the business. To me, passive income through a business means the ability for the owner to be hands off the daily operations of the business. The owner becomes free to work ON the business rather than in it.

To me working ON the business means:

- Monitoring the longer-term business strategy to ensure it accommodates current market conditions.
- Monitoring financial reports to ensure the business is on target.
- Creation of systems to further streamline the business.
- Monitoring and responding to client satisfaction surveys to ensure the clients needs are being met.
- Implementation of effective marketing strategies to ensure the ongoing existence of the business.
- Recruitment of quality employees to deliver a quality product to meet client needs.

There are many ways to generate passive income through a business. Some examples may include:

- Selling products or advertising space on-line
- Licensing or franchising fees
- Systemising the business so it works without you

My chosen method is to systemise the business so I can spend my time working on the business rather than in it. This will protect my income stream whilst having time to pursue my Primary Aim. Income earned through the business will then be used to purchase investments to generate further streams of cash-flow and generate wealth.

Honestly assess your business. Are you free of it? Do you have a model that enables you to free yourself in the future, or are you the business? Would your business stop generating an income if you were not there as many hours as you are now?