Ratching Down in a Downturn

There are several events that can be called a "down-turn."
  1. Nearby competitor moves in.

  2. Existing competitor remodels.

  3. Your customer base changes.

    1. Plant closing.
    2. Aging neighborhood.
    3. Changes in highways and bridges.

  4. National recession.
  5. Local recession.
  6. Change in public preferences.

But the question is, "What can I do about it?"

The bad news is that during good times, few businesses run at peak performance. The gross profit percentages could have been a little higher, inventory could have been trimmed, the cost of labor and other expenses could have been managed better. In good times when the profit level is enough to put the owner in his comfort zone, the incentive to squeeze that additional profit is just not worth the extra work.

The good news is that this also gives the owner several immediate responses to fallen sales.

  1. Maybe you do not want to lay anyone off, but if anyone quits, do not replace him.
  2. Replace sold merchandise, but do not continue to buy at the higher levels. If sales are down x%, then purchases should be down x%. Salesmen will not do this for you; you must enforce it.
  3. Reduce the size of your inventory. Change your buying habits so that you only buy less than 30 days' merchandise.
  4. Seriously weigh each expense; make changes for the following month.

Beyond these ready-made steps, there are some other things you should do:

    • Prepare a budget. Admit the reduced sales and prepare a budget of expenses that the current sales can reduce.
    • Study your Income statements more than you have before. Find out what lines are still profitable, what lines are no longer profitable, and see if any previously overlooked lines have become more profitable. Respond to the changes accordingly.
    • Do brainstorming. There is probably some unused space inside or outside the building that may be converted to some profit center.