Plan for the better times that follow downturns

[Editor’s note: This is the final part of a two-part guest column. Part I, “Leading your company through tough times,” appeared in the Aug. 28, 2008, edition of Providence Business News.]
Part one of this column focused on strong, positive leadership and protecting your company’s competitive advantage as two of the keys to succeeding in today’s difficult business climate. In part two, I discuss how to strengthen your systems, procedures and profitability to see you through tough times and how, coupled with a strategic plan, you will be positioned to prosper when business conditions improve.
Check your warning systems
Urgency is important when the business climate is weak. You need to know quickly and accurately what’s going on so that you can anticipate and respond promptly to issues before they become big problems.
Internally, pay close attention to “the numbers,” the various metrics and financial ratios that quantify what’s going on. Trends usually mean more than absolute numbers, so make sure your metrics reflect the key success factors of your business. Track them monthly and monitor their relative movements up and down. Additionally, watch your cash flow closely. Anticipate your needs and do not let the situation become acute before taking remedial actions. The deeper the trouble, the less maneuvering room you have.
Listen to employees at all levels of your organization, not just fellow executives. Practice LBWA, Leadership By Walking Around. I have found that the further “down” in an organization you go, the more you find out what’s really going on.
Externally, move closer to your customers. Look for indicators that they may be having difficulties, such as smaller orders and shorter lead times for deliveries. Do all you can to demonstrate the winning attitude with customers: How can we help you be more successful? Visit them, personally tell them how much you appreciate their business and ask your sales people to do the same, ensuring a prompt response to any need.
Talk frequently with your suppliers. Try to find out how they are doing. If they are forced to close, how would that affect you? Do you have backup?
Keep an eye on your competitors. If they’ve pulled in their horns, if they are being overly cautious and reactive, this may be your opportunity to expand your market share. If they are struggling, they might be open to being acquired. You might even be able to hire some of their top performers to build your staff. On the flip-side, beware: they may be thinking the same about you. Consider assigning members of your staff to monitor and report regularly on customer and supplier relations and competitor activities.
Make sure your banker is fully informed about how your company is doing – particularly if you are experiencing problems. Trust is vitally important in this relationship. An informed banker who has developed confidence in your business can be an important ally in tough times.
Analyze profitability more precisely
The traditional approach to profitability improvement includes taking steps to increase prices, cut expenses, lower your break-even point, and improve productivity by investing in technology and automation and by streamlining procedures and processes.
Assuming you have already taken these steps, your next initiative is to analyze profitability by product/service, by customer/client and by market segment. Subtract direct costs from revenues to determine the contribution to overhead and profit. Once the profit winners and weaklings are identified, actions can be taken to capitalize on the former and to improve or eliminate the latter. An objective third-party adviser can be of enormous help on this approach to profit improvement. If you have never done this, the results can be eye-opening.
Prepare for the upturn
A common mistake companies make in a downturn is not preparing for the upturn. Laying the groundwork for the better times to come accomplishes two things: you will be faster out of the blocks when things turn around and you will improve staff morale by emphasizing that things will get better and by having them focus on positive issues.
Make sure that your strategic plan is current. If you don’t have one, develop one ASAP, because without it, you are flying totally blind. The strategic planning retreats we facilitate with clients include all the company’s key leaders. Their active participation in developing the plan helps to build consensus as well as commitment to the plan’s implementation. Your plan should include a ‘desired profile’ that contains a vision statement, defining where the company wants to be in 3 to 5 years, and a one-year plan that includes the key initiatives necessary to begin the journey toward realizing the three- to five-year vision.
All business history so far reassures that good times follow bad, so lead aggressively with that in mind. If you focus on strengthening your company and your customer and supplier relations, if you develop and follow a measurable strategic plan, and if you are poised to take advantage of the upturn, you will not only survive the bad times, you will likely emerge stronger and more profitable. •
Jay Cumming, CPA/CVA, MBA, specializes in strategic planning, executive coaching, succession planning and profitability improvement at Tofias PC. He can be reached at JCumming@tofias.com. Tofias, the second-largest regional accounting firm in New England, and one of the 2008 Best Places to Work in Rhode Island, has offices in Providence, Newport, Cambridge, Mass., and New Bedford.