There's no denying that these are tough times we're living in. Over the past year, we've seen home prices drop by the highest rate ever, existing home sales reach a 10-year low, auto sales plunge to a 16-year low, all while unemployment rates approach 6 percent, the U.S. dollar continues to weaken and bank credit availability proceeds to tighten even further. It's not a pretty picture and that's just a start. So what can you do?
According to J. Tol Broome, commercial lending banker and business writer, the first step is resisting the urge to panic, as this can result in irrational decisions that could do more harm than good in the long run. An economic downturn is actually the best time to assess your business and your competition. As Broome says, "When the tide goes out, we find out who's been swimming naked." In other words, any business can thrive in a period of strong economic growth, but when times get tough, the weak often don't survive. So ask yourself some hard questions: Do I have the right product mix? Am I meeting the needs of my customers? Is my location optimal? Do my price points make sense relative to the market? Now is the time to make any changes that might give you a leg up on the competition.
This is also a good time to take a close look at your expenses and try to cut costs. It can be difficult to do, since payroll often makes up a large chunk of expenses, and cutting payroll means cutting the hours of your employees or possibly even letting some of them go. Sometimes this is necessary, but there are other ways to trim expenses too. Broome suggests trying the following: seeking bids for your various insurance coverages at the next renewal date, initiating a control system for ordering supplies, outsourcing services such as bookkeeping and payroll, reviewing your cellular plan and so on.
You can also take the opportunity to evaluate your inventory strategy. While it might seem like a good idea to carry a little bit of everything, this can hurt cash flow when every dollar counts. It's time to get rid of slow-moving and low-margin rental inventory. Why not stick around the store for a few evenings after closing one week and take inventory of the dead stuff. And then get rid of it. Put the extra money into your niche items that turn much faster or put it in the bank.
There are a number of things you can do to weatherproof your business against the economic storm we're currently facing. Many of them involve some sacrifices, but it's a small price to pay to keep your business afloat now and into the future. Look for more tips from J. Tol Broome on how to survive the economic storm in upcoming issues of Rental Product News and on our portal website www.forconstructionpros.com.