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By Wayne Rivers This article is Part 6 of a series outlining the 90 best practices of successful family and closely held businesses and the actions which allow companies to weather economic storms. The 90 best practices don’t necessarily appear in order of priority, and, due to your particular circumstances, some of the practices will be more or less valuable to your closely held company. They will not be presented as exhaustive analyses; rather, each article will touch on a few of the best practices with a very brief explanation. More depth on each of the topics is as close as doing internet research or making a phone call to The Family Business Institute. As you read the series of articles, please try to select the highest impact practices upon which to focus. Trying to get your mind around all 90 best practices simultaneously would be like trying to enjoy a drink of water through a fire hose. The best practices will be concentrated in five distinct categories: 1. Cash flow, 2. Belt tightening & cost reduction, 3. Processes & systems, 4. Opportunities, and 5. What to avoid or of what to be wary. We hope this series is beneficial in helping you prosper in tough times. 27. When time is of the essence, develop DECISION CRITERIA (Processes & systems) One of the worst things that family and closely held businesses can do in times of recession is to run into deadlocked decision making. Tough times require that business make swift, sure decisions on strategy and direction. Companies that have decision making which is hamstrung by disagreeing family members or warring leadership factions run the very real risk of bickering themselves into oblivion. There may be windows of opportunity which are even now closing, and slow decision making — or worse, deciding not to decide at all — are among the worst things you can do in recessionary times. 28. Create a better, more rigorous customer selection criteria (Processes & systems) In tough times, the inclination of many entrepreneurs is to take almost any new business which walks in their doors. Some companies even compete with other companies to see who can take on the most low margin, low payoff work possible. The road to oblivion is paved with companies that have taken on low margin work from clients who are not the most credit worthy. What then happens is they get into a cash flow crunch because the low margins are compounded by slow collections. Before they know it, they are into their line of credit to provide working capital while they scramble to reduce accounts receivable and squeeze money out of customers who didn’t have it in the first place. You’re better off not taking work at all than taking on low margin work from customers who are going to have a hard time paying you. 29. Undertake an expense audit or expense benchmarking (Processes & systems) One of the frustrations about tough economic times is that its often difficult for closely held business leaders to know exactly where and how much to cut. One of the tools that can help is to undertake an expense audit or a benchmarking process. Its easy for an entrepreneur to say, “there’s absolutely no fat in my budget,” but the facts contradict this claim. Last year, we had a business leader call. He had a vague, unsettled feeling that he was probably spending more on his internal accounting team than he really should have been. However, he just didn’t have a measuring stick against which to compare his expenditures. We were able to provide him with a standard, and, sure enough, his entrepreneurial instinct was correct. He had an overstaffed accounting department which was costing him far more money that the accounting departments in companies of similar size. To compound the problem, since there really wasn’t enough work to keep everyone in the department fully occupied, their productivity had dropped so that the work output could be stretched over all the people over the course of a normal work week. In other words, he had five people doing the work of three. Expense audits can help you see clearly where you have expenses out of line or, conversely, low productivity departments which could stand to be shaken up. 30. Buy distressed assets or competitors (Opportunities) There are a lot of deals to be had right now! You name it, and there is a fire sale going on. Whether its equipment, property, HR talent, or even operating businesses, there are lots of people who are hurting and lots who just don’t have the stomach to rebuild again after yet another boom and bust business cycle. The pain of other people signals a serious buying opportunity for those who are in good shape. If your company is running effectively, you are in a strong financial position, and you’ve built systems and processes which will allow you to extend your business capacity beyond its current level, you are a candidate to acquire distressed assets. We’ve all heard stories of people who bought wonderful investments for pennies on the dollar. It’s a lead pipe cinch that those incredible deals came along at time when one party was distressed and the purchasing party was at a point where it was able to capitalize on that distress. Where there is an opportunity to buy a competitor which would gain you a new geography, new customers, a strategic advantage, a complimentary product or service, or any other opportunity, don’t be shy. Do your due diligence, and pull the trigger if the opportunity looks good enough. 31. Join a peer review or executive performance roundtable group (Opportunities) There is an old saying that it is lonely at the top. That statement is never more true than during tough times. Closely held business leaders rack their brains during tough times about what they should do. Should they undertake layoffs? Should they close down a division? Should they fire certain customers? Should they pursue new or different opportunities? Should they spend money now on marketing or IT systems which would give them greater capacity heading out of the recession? The sheer number and volume of questions about what to do, when to do it, and the potential payoff or downside is enough to make even the stoutest entrepreneur dizzy. One of the great places to take these kinds of questions is to a CEO Performance Roundtable group. In these types of groups, CEOs meet with non-competing peers in an open and trusting forum. Virtually nothing is off the table in terms of sharing. Business leaders can relate their innermost fears and desires to the group. All the executives present are there to help each other, and that help is needed in tough times far more than it is in good times. Believe it or not, even though most business categories are down during this particular recession, sales of participation in CEO Performance Roundtable groups is up! Smart CEOs intuitively know that their peers have the information and experience they need to help them make the wisest possible decisions in tough times. In every downturn, some companies not only survive but prosper. We earnestly hope this series will help you reach your fullest potential. The 90 Best Practices for Recession Survival (and Maybe Propserity): Part 7 Wayne Rivers is the president of The Family Business Institute, Inc. FBI’s mission is to deliver interpersonal, operational and financial solutions to help family and closely-held businesses achieve breakthrough success.
March 2009
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