Posts Tagged ‘Downturn’

What Are The Best Pricing Practices For Small Business During An Economic Slowdown?

February 21st, 2012 admin

In an economic slowdown your pricing is determined by factors like input cost of production or distribution channel cost etc. ….. which are primarily working on market factors. Generally one should be working on a reactive strategy of open price …. which allows for revision in product pricing over a shorter time period instead of quarterly or yearly market driven slashes or increases.

The important consideration is to try to maintain sales, even if some of them yield marginal or no profit (i,e, break even). In other words, so long as you are covering your costs, particularly fixed costs, then there is value in doing so.

However, unless you wish to become the low-cost leader going forward, then this low pricing may create a precedent which customers expect to continue, and it also may devalue the brand.

So pricing strategy must be decided carefully, with all things considered, including unintended consequences. And it may be better to have various incentives rather than simple price cuts in order to sustain sales.

In the article “Pricing in an Inflationary_Downturn”, McKinsey recommends the following actions:

-Watch for sudden shifts in price structure
-Adjust to changing customer needs
-Monitor customer-level profitability
-Update price sensitivity research

Many companies across the nation are on the verge of closing their doors and some have already started liquidating their inventory.

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Joe The Plumber & The Small Business Tax Issue

January 4th, 2012 admin

When it comes to taxes this election and Obama vs McCain … just what does it mean to be “Joe The Plumber” or any small business owner for that matter?

If the problem we have in the country is a lack of jobs (unemployment numbers have been increasing, but this is one of many issues), should we be increasing the taxes of the job producers (remember Small Businesses create the most jobs in the US)?

Most small businesses don’t have the mythical $250,000 income (though they may make over $120k at which point McCain’s plan would save them more in taxes). But most small businesses don’t have any employees either. The small businesses that do have multiple employees likely fall into this category (250K earniners).

How much income should the business be throwing off before the owner is comfortable expanding their staff? Probably somewhere around 250k when you consider employee expenses (salary, taxes, insurance, etc), risk of a future downturn, and the owner’s personal income?

If you’re comparing with vs without Obama’s plan, then the number is $250k. But if you compare how much better off you are with Obama vs McCain, then the number is around $120k (see link).

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Tough Time to Borrow

January 1st, 2012 admin

We’re seeing a real downturn in the number of banks interested in doing business loans including SBA loans. If you are in startup mode, its going to be even harder.

The Small Business Administration last week encouraged banks that participate in SBA lending to be more willing to do loans and not rush to call in existing loans. This pitch by the SBA we caused by the clear lack of options to secure funding using conventional loans or the personal equity in their homes as those loans dry up.

According to the National Community Reinvestment Coalition, SBA 7a loans for small businesses were down $160 million between 2005 and 2006.

funding is down in the last few years. Fees on SBA loans have gone up quite a bit since 2005 and have these loans unattractive for some people. Certainly almost all banks has stopped doing start up business loans to lessen their risk. SBA loans worked because they were bundled and sold on the secondary market. Bruce Rossi, vice president heading SBA lending at Provident Bank in Woodbridge, New Jersey, states that insurance companies and pension funds have not been buying the loans as they have in the past. Banks that have made money selling SBA’s are not making the money on them that they did in the past.

Banks are citing the low credit quality of their applicants as another reason their SBA lending is down.

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When to Reinvest in Your Business

September 10th, 2011 webkriti

With many businesses feeling the squeeze of a poor economy, you may be asking yourself if now is really the best time to drop more money on a business that might not see the other side of this recession.  In truth, if you can’t hold out for at least a couple more years, it may be time to think about cutting your losses and moving back into the nine-to-five yourself.  But if you’re keeping your head above water and it looks like you might be able to squeak by with minimal damage despite ongoing financial hardships, then perhaps you are wondering what WOULD be a good time to reinvest in your enterprise.  Here are just a few tips to help you determine when the time is right.

  1. When you’ve got a surplus.  Saving for a rainy day is well and good in your personal life, but if you need to put money back into your business to stay afloat and you happen to have some extra cash on hand, then what the heck are you waiting for?  The only chance you have to pay off your business loans and turn a profit is to keep your doors open, so don’t hesitate to return earnings to your business as needed rather than tucking them away for stormy weather (when it could be too late).
  2. When the economy starts to rebound.  It may seem like a pipe dream right now, despite the fact the government and their pundit lackeys keep telling us it’s just around the corner, but the long history of economics tells us that after a downturn there will be an upswing eventually.  So if you can scrape by on what you’ve got until things start to pick up, then you should definitely consider beefing up your operation once you see sales begin to increase (before new businesses swoop in to capitalize on the upturn and sweep your proverbial leg).
  3. If expansion is a possibility.  If your business is doing well enough that you can begin to think about expanding, or you have been offered the impetus to do so (in other words, you have the means and opportunity to grow), then it’s probably a good time to reinvest in your business.  By moving into other locations or increasing your lineup of products or services you have the prospect of solidifying your foothold in the marketplace, taking on new competition, and succeeding beyond what you originally thought was possible when you set out to start your business.  So when the door opens, walk through.
  4. When you have investors on the line.  Any time you have investors interested in helping you to take your business to the next level you’re going to have to step up and show them that you’re willing to put your money where your mouth is.  Most investors are not going to offer everything you need like some financial fairy godmother, so you’ll likely have to put up some funds in order to keep outside investors interested.
  5. When lenders approve.  Whether you’ve gained approval from a lending institution with a long history and a stellar reputation or you’re getting funded by relatively new online banks, the time to reinvest in your business may simply be the moment you receive approval, especially if you’re hanging on by a thread.

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Investing’s Basic Rules

September 24th, 2009 admin

business | business strategy | business consulting | business modeling | process modeling | Business Strategic Planning | Consulting Process | Business Process Modeling

Basic Rules in Investing

Do not put up cash that you cannot afford to lose ought to the market take a downturn.

There is a key word in the preceding phrase however. In order to realize what the numbers means, you are required to have a galore of primary surroundings and training. The best investments are proven over time, and therefore it’s best to place your funds in long term choices. One rule that humans seem to refuse to implement in any area of their lives, including the world of investing, is lean not on your own understanding. However, that these rules have withstood the test of time.

As in any form of gambling, there is nothing to be gained and everything to be lost with regards to investing. Check the background of the advisor you choose, as there are galore brokers out there searching for a quick fleece. This reasoning is essentially flawed. Think long term.

Most of the time, this is the outcome of humans balking at entrusting somebody else with their cash, believing that with a small understanding they may work the market themselves.

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Starting a Business in a Down Economy

July 13th, 2009 admin

There are many of us at the Small Business Development Center who believe that this is a good time to start a business. While it certainly is not a great time to get a bank loan for working capital, there are several key attributes found in businesses that open in a down economy. These entrepreneurs tend to be very committed to researching their idea thoroughly, select partners more carefully and weigh purchases more wisely than free spending business owners earlier in this decade. The established competition may have been weakened by the downturn, making entry into the market easier. Entrepreneurs who start up in a down economy understand fast change and take advantage of that to create new niches and market share.
A recent Inc. Magazine article bears this out. Carl Schramm, President of the entrepreneurship supportive Kauffman Foundation talks about great companies frequently get launched during a recession.
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61% of Americans Have Started a Business or are Considering Doing So.

May 24th, 2009 admin

We see lots of people who are considering a business startup. They are either creating a business out of a hobby they love, desire to get out of the rat race and spend more time at home, have discovered a better way to do something, or are “accidental entrepreneurs” who lost their job and feel the need to create something for themselves. This Wall Street Journal article from their Reinvent section, shows the increasing popularity of entrepreneurship. 

Ready to be the Boss?

Becoming an entrepreneur seems to be in vogue in this downturn. A 2009 survey by FindLaw.com indicates that 61% of Americans have either started or thought about starting a small business. And according to the Small Business Administration, small businesses employ about half of all U.S. workers and have generated more than half of the net new jobs over the past decade.

Liz Bayer is one of those entrepreneurs. She spent decades in retail management positions for companies like Williams-Sonoma and Bath & Body Works, but eventually grew disenchanted with corporate America.

“I felt that the companies I worked for weren’t invested in growing the company and nurturing the individual,” says Ms.

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The Economist:Small Businesses Optimistic Worldwide

May 21st, 2009 admin

Small business executives remain optimistic about the long term despite global recession

Yet most remain very worried about the short-term outlook and say that governments are doing too little to support them, according to a survey by the Economist Intelligence Unit

It is nice to get a worldwide perspective on the state of small business from time to time. We believe that the worst is over here in Northeast Florida and recent studies like this one are bearing this out. the Economist Intelligence Unit is a part of the venerable publication, The Economist.

Growth is a challenge for any business, but never more so than during a downturn—especially one as severe as the global recession currently under way. Despite this, 83% of small business executives report that they are optimistic about their company’s long-term ability to rebound when the economy improves. In fact, 65% expect their company’s market share to have increased by the time the recession ends, and 73% expect revenues to have increased.

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Where Should Small Business Owners Focus In Today’s Economy??

March 16th, 2009 admin

The times may be tough, but a lot of businesses are facing all the same issues they were before. And some of us are still very busy. I suspect some of your usual programs could be retooled slightly to help people take advantage of the opportunities that are the flip side of any downturn.

Put it this way …. don’t panic, calm down, and think strategically. A recession provides many opportunities that only happen once every seven years or so.

LEVERAGE low interest rates, low prices, high commercial real estate vacancy rates to reprice your infrastructure and your supply chain.

ENGAGE in carefully calculated risks to finally acquire that competitor who is struggling much harder than you are right now.

TRANSFORM problems like a supplier’s contract breach into an opportunity to renegotiate more favorable terms for the long haul.

Yes, we all need to be wise and frugal, but those who spend this year cowering in fear may later regret missing out on rare windows of opportunity.

Plenty of small business owners are investing in growth and expansion, preparing for new venture launches, and otherwise using this time to make wise competitive moves to come out well-positioned when we reach better days.

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