Small Business Advice
Recession Is Coming
When someone says that the free market isn't working, what he means is that he doesn't like the way the free market is working.
— Nicolas Martin
As most things in life are cyclical, our economy is in the process of going through a downward cycle. I am seeing evidence of this starting to happen in many types of businesses, not just in housing. Automotive sales are off as well, and even many thrift stores are seeing declining revenues from potential customers. This recession is starting to affect all income levels, and many entrepreneurs are starting to feel the effects of this right now. Furthermore, when the state of Florida starts its personnel cutbacks to account for the deficit in the state budget, local economies and entrepreneurs are going to undergo the effects even more dramatically.
Last week, the Federal Reserve reduced the rate it charges banks by three-fourth of a percent, and it will probably reduce it even more next week. In addition, the federal government is in the process of passing a large tax rebate for all taxpayers. The bottom line is that we are going into a recession, which just happens with our type of economy.
With a recession coming and already underway, you must have a way to deal with declining sales. I like to tell entrepreneurs that they must have a plan to withstand a fall in sales of 30 to 40 percent. Hopefully this will not occur, but just in case, a plan must be in place for this coming year.
Time and time again I have seen businesses make the mistake of waiting too long to cut back in the face of falling sales. They spend too much time hoping things will improve. This is a very costly error and can risk the financial viability of the business. The sooner you cut back, the better!
In terms of cutting costs, you need to evaluate labor, communications, insurance and all costs. Nothing should be sacrosanct as you look for ways to reduce costs. However, it is not a good idea to cut advertising, as this activity is critical for your continued existence.
Like most things, cutting costs is a very traumatic process. However, you must do it, and it must be done before it is too late to recover from the financial impact. I have assisted many firms that are going through this process, and each has a hard time, especially when it comes to laying off workers. However, without exception, they come out of the economic decline saying that cutting costs not only helped them get through the rough times, but it also allowed them to flourish in the future.
Now go out and make sure you have made a plan for dealing with the impending recession, as well as identified the triggering events that will put the recession plan in place.
You can do this!
Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at email@example.com or by phone at 850-644-3372.