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How to keep a small business afloat

Glenn Curtis, Investopedia | March 20, 2009

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If you are a small business owner and sales are plummeting, the future might look bleak. What can you do to survive through stormy economic times?

Unfortunately, there is no playbook to follow to "right the ship". Every small business is different, and each one carries its own unique risks and rewards. Such differences make copying another company's turnaround strategy to the letter a bit unrealistic. Still, there are some general strategies business owners can follow to help you stop taking on water, and start bailing yourself out.

Tip 1: Look at the big picture

People have a tendency to attack the most obvious problems with vigor and without hesitation. That's understandable, and perhaps the approach makes good business sense in some situations. However, it is also advisable to look at the "big picture" to effectuate a positive and lasting change, comprehend the size and scope of the problem and understand a company's strengths and weaknesses.

For example, suppose that a small business owner discovers that two employees are consistently making mistakes with inventory that cause certain supplies to be over- or under-stocked. While an instinctive reaction may be to fire those employees, another approach might be to examine whether the manager who hired and supervises them has properly trained these employees, or if the manager is the real problem. Just like in investing, by looking at the issue from a top-down perspective it is possible to reduce or eliminate the chance that these problems will occur again.

Using the above example, a manager might fire the two error-prone employees, or perhaps even the manager, without a second thought. This might damage the business, however, if the manager's relationships with existing clientele have a history of bringing in repeat business and substantial revenue. Some simple training for that manager might be a better alternative than termination.

Taking a top-down approach and understanding the true problems that are holding your business back will help you understand the company's strengths as well as its weaknesses, and prevent change from adversely impacting future sales.

Tip 2: Take an inventory of the staff

Payroll is often one of the top costs a small business owner has, so making sure the money is well spent makes sense.

This may involve a thorough review of the staff - both when a problem arises, as well as during the normal course of business - to make sure the right people are on-board and doing their jobs effectively.

Both small business owners and large corporations tend to be "penny wise and pound foolish" when they hire the least expensive workers. Sometimes, the productivity of those workers may be suspect. Hiring one worker who costs 20 per cent more than the average worker but who works 40% more effectively makes sense, particularly during periods of crisis. By constantly seeking resumes and interviews from new people, business owners can make changes to staff when needed to increase efficiency.

Tip 3: Keep the money spigot open

Small business owners should take steps to ensure that the company has access to cash, particularly in periods of crisis. Visiting a bank loan officer and understanding what's required to obtain a loan is a good first step, as is opening a line of credit in advance to fund possible short-term cash flow problems.

Small business owners should have other potential sources of capital lined up as well. This might include tapping into savings, liquidating stock holdings, or borrowing from family members. A small business owner must have access to capital or have a creative way to obtain funds to make it through any lean times. There is no substitute for having cash at the ready.

Tip 4: Start sweating the small stuff

Although it is important to keep an eye on the big a picture, a small business owner should not overlook smaller things that may have an adverse impact on the business.

A large tree obstructing the public's view of the business or the company's signage, inadequate parking, lack of road/traffic access or ineffective advertising are examples of small problems that can put a big dent in a business's bottom line.

Considering and analyzing the numerous factors that bring customers in the door can help to identify some problems. Going through your quarterly expenses line-by-line may also help you isolate and identify problem areas. Owners should not be checking for one-time expenses here (as these items were most likely necessary charges), instead owners should look for small items that seem innocent, but are actually draining the accounts. For example, items like office supplies quickly get out of hand if ordered improperly. Similarly, if your supplier increases product prices, you should consider looking around for a cheaper supplier.

Tip 5: Don't sacrifice quality

If the problem is a product issue it makes sense to attack it head on. It also makes sense to stay on the offensive and get employees on board with changes that are being made. However, owners should be cognizant of not sacrificing quality when making these product changes.

Business owners seeking to improve their margins on a particular product should be wary of making dramatic changes to particular components. For example, if a pizzeria is going through a dry spell the owner could seek to expand margins per pie by purchasing cheaper cheese or sauce ingredients. However, the strategy could backfire if customers become dissatisfied with the taste (quality) of the pizza and sales decrease. The key is to make cost and other cuts, while retaining the quality of the finished product.

Floating a small business

Keeping a small business afloat in difficult times is often challenging. That's because there is no set playbook for an owner to follow, and because every business situation is different. But, because many small businesses also come with very passionate owners, some simple attention to detail can ensure that a business sails right on through to calmer and more prosperous economic times.

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