Strategies that can help small business survive this recession.
You should cut down on the items that do not yield good return / Published 3 / 02 / 2009
In a tight economy where money is hard to come by most business makes appropriate measure to reduce operational cost as a mean to balance their budget. Companies that have engaged in cost cutting initiatives which have led employees to be laid off, and their product quality to be reduced have projected signs of weaknesses. This weakness project to their competitors as well as their shareholders a sign of fatigue caused by this recession.
These companies can no longer continue surfing the wave of this economy, their purchasing power has weakened alone with the value of their shareholders. Although these companies have laid-off workers and cut on product quality to keep their stock values in competition with their competitors, does not mean that they have overcome their weaknesses.
However, any attempt to reduce in cost to keep their market shares up is advantageous in the sense that if the reason for the cut was not noticeable by the investors, then their weaknesses would have gone undetectable. If this were to happen it would have helped avoid a sudden drop in stock prices, because then investors would not have noticed that the true reason for people being laid off was because of a loss in profit.
However, companies that are strong enough to increase their profit margin under this recession should now take advantage of their competitor’s weakness to increase their market shares. They should then promote to their competitor’s shareholders their strength for having battled this economic wave.
They should pronounce publicly their growth strategy, strengths & opportunities to their share holders as a mean to reduce the company's threats & weaknesses. Investors are afraid of layoffs, usually when companies laid-off workers it means that they's been a drop in profit.
The reason for the layoffs is an attempt to compensate for the loss. But very often this tactic doesn't work, especially if the loss may have been the result of mismanagement or wrong strategy employed by the company. In this case, even if employees were laid-off, the mismanagement would continue.
In the case of the small business, employee's being laid off does not affect the small business stock as much as the corporation. Whereas the small business can lay off workers to accommodate their loss, the corporation must be careful if they must go that route. The only cases where corporation layoffs do not affect their stock prices are when the company layoff workers because of departmental downsize or the complete elimination of a department.
The corporation analyzes skills, duties and job titles, especially during a takeover. They look for relationships between job titles as it pertains to duties and departments. This takes place during the first trimester of the takeover, but can continue longer as strategist from the acquisition company learn more about useless job titles and duties.
To keep it simple, the acquisition company's intent is to consolidate, because to the strategist, any employee duties that overlap each other should belong to the same department. This is why very often after a takeover has been finalized employees change departments; others are laid off, some have their titles change.
And sometime new technology can bring about new ideas that can cause workers to gradually displace by machines, because production from the machine side is obviously incomparable to that of the employees.
Most corporations would not hold the future hostage for the need of holding on to jobs that are performed by workers. If new technologies eliminate the need for employees presence for a particular job, then corporations may invest on teaching employees how to fix those machines that have replaced them.
However, it is without a doubt that the employee for this new job description would not have been in greater need, since higher skilled workers plus work load would have been to a minimal. The small business can also benefit from these technologies; it will depend on their business practice, and the kind of technology that is necessary to have their work performed by machines.
Nevertheless, the spend manager of a solid business that is surfing this economic wave, should selectively spent their monies only on products that hold true value. Which mean to invest in necessities like real estate, agriculture & home products that are always in need?
During a recession commodities that are viewed as necessities do not lose much in value. Their market price fluctuate a fraction at a time but never to the point where it cause shareholders to cash out because of fear.
As a mater fact, during the time of recession, necessities are in greater needs because people only buy what they need. And for that reason, the small business can focus on selling products that are at need at a reasonable price where profit is possible.
One of the main important points that the small business can consider is location. If location determine the faith of a business, then a good business model is the supporting truth of that faith.
A good business model takes into account all possibilities, because if the business must have a physical presence then location can affect the profit margin of that business. For that, the business owner can consider relocating if rent is greater than half of the profit margin the business has accrued; other than that, it's a matter of proper selections, choosing to sale products that are in need at times of recession.
Then again, the business owner must know the customers like he/she knows the back of their hands. That is to say, know the income level of people in the neighborhood where the business is situated. Know their ethnicity; hire workers that can relate to them. Having known that would have helped the business buyer select which product or services is in demand for that area, and how the customers are more likely to behave towards new products.
Small businesses that cannot capitalize on an item should not consider selling it. If the profit you make on that item is too small you must average how much of them you’re selling comparing to the profit you retained from the sell. Sometimes, it may not pay to carry some items, especially if you the business owner can gain more from selling something else. Since profit is directly proportional to items sold, than items must correspond to customer's needs.
Be aware of name brand, sometimes you don’t gain as much profit selling name brand items than if you were to sale common brand that cost less. It is how much you retain from selling the item that makes a different. Where you may sale a pair of Level 99 for $170.00 and make $4.00 profit on every pair, is not as profitable when you sale a pair of regular jean at $60.00 and make a $10.00 profit.
In this case, the business owner should carry just a small stack of the name brand jean just to attract customers who are into name brand into the store. Having them in the store will attract more customers, and even if they don't buy the name brand, it is possible that they may find something else that is equally important to them.
Under an economic crisis, business owners should spend money on commodities that can yield the most return on investment. Among which are those that I have stated above. But to do that the company should reduce spending on products that bring fewer returns. Products that are selling slowly should be reduced down in quantity. Which mean if a business owner normally purchased 200 items, that 200 should be reduced to a level where at the end of each month the business has no left over?
At a time when money is hard to come by, business owners must be precise when doing inventory. They cannot afford to have left over or damage products that yield no value. Every loss must be accounted for, and every damage product should indicate a net loss from the overall net gain. As the economy worsen, as a small business owner you do not want to contribute to this lack in sell. Your job is to minimize it by neutralizing this loss through proper budgeting and careful selections. That is to say, organize your budget around product selections that are selling, and minimize your spending on those that are not selling.
A better understanding, imply that the spend manager reevaluate the demand supply curve of the business and make suitable measure to accommodate demand while slowing down on the overall supply. This strategy works because the business owner spend more of its money on the products that attracts demand as opposed to those that yield fewer return on investment.
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