6 for Survival
Tips to maneuver through a down economy

By James J. Hartmann, CPA
Clifton Gunderson

With the recent failures in subprime lending, falling interest rates and inflationary pressure, many businesses are feeling the
crunch. The crunch happens when customers become reluctant to spend money. In addition, the crunch comes when the costs of labor and goods increase. Both of these trends can have a detrimental effect on the bottom line. Here are six proactive strategies to think about if you are feeling a crunch in the economic downturn.
1. Evaluate non-essential capital expenditures.
You may have accelerated spending to take advantage of tax deductions at the end of the last calendar year. If that is the case, then you may have financed those accelerated purchases with debt. Now is the time to evaluate the terms of that debt, not increase it. An increase to the debt load can increase the debt service expense and cause an additional pinch to the bottom line. Evaluate all capital expenditures at the first half of the year in hopes that the economy will turn around in the later
half of the year.
2. Reduce spending. Compare your current spending to the last year’s spending. In addition, you should sort your expenses from the largest percentage of revenue to the smallest. Go after the expenses that will have the most bang for the buck. Typical expenses for the small- to medium-size business may include large increases to health insurance premiums
for covered employees. For businesses, health care costs have risen exponentially in the last three years. Explore ideas like moving from a full coverage plan to an HRA program, or take advantage of an HSA program for your employees.

3. Inspect internal operations. As the economy turns sour, receivables tend to rise. Negotiate work-outs with bad credit risks. Make sure that you don’t take on the role of the bank in lending money to your customers. Now is the time to be collecting your receivables to enhance cash flow.

4. Diversify your markets. Are you stuck with a product being sold to only one market? Is there a way you can repackage that product and get easy access with a low barrier of entry into another market? For example, Pillsbury prepared dough is sold as at least 100 different product lines. It’s the same dough; they just repackage it into different brands.

5. Analyze your customers. There’s an old rule in the services industries: Once you evaluate the bottom 10 percent of your customers every year, pare them down. Use multiple criteria to evaluate your customers. For example, it’s not just the customers who represent large dollar volume sales or fees that need to be retained.
Look at their payment frequency. Are they customers who you enjoy working with and have a good rapport with? Can you add value to the customer? Is the customer contributing to your organization’s profitability?Are the customers slow to pay? Do the customers provide you with referrals? Look with a cautious eye at who you do business with and make sure they are the customers who fit your strategy. Take quick action on those who don’t.

6. Analyze your employee benefits. There are ways of deferring income that can save you cash based on a promise to pay an employee at a later date. These so called “supplemental executive retirement plans” can be excellent motivational tools that you can use to enhance cash flow. Also, you can re-evaluate incentive bonus programs and make sure that the recipient bonus programs earn money only when the business is successful. There are many different tactics that businesses
can take to help increase revenues and help increase cash flow by closely monitoring the source of revenues, as well as the expenses that cause cash crunches. In an economic downturn, survival is key.You can apply one or more of these techniques to help survive until the economy picks up the pace once again. ■

James J. Hartmann, CPA, Assurance Partner, is partner-in-charge of Clifton Gunderson’s Madison office. He specializes in
providing assurance, accounting and high-level business advisory services for various industries, including agribusiness, cooperatives, manufacturing and commercial entities.