The premise of business is to make money, that is, create wealth in the form of capital.  Not in the sense of a King Midas miser, but rather to build the economy by making investments and creating jobs.  Small business has traditionally been a strong economic engine, accounting for over 50% of the capital investment made and for more than 90% of the jobs created.

This engine only works, however, if the drivers (read ‘entrepreneurs’) stay on the road to prosperity.  In our current slow economy and uncertain short-term trends that is more critical than ever.  While some business owners may need to be making investments in their company’s future rather than taking immediate profits, the actions must lead to ultimate profits to avoid loss of the investment.

There are also conditions where it makes sense to run a business at break-even during slow times, with the entrepreneur paying themselves just enough to cover their bills.  But that too, must be temporary; the strategy must lead to future profits.  Unless that is the case, the entrepreneur has merely ‘created a job’ for themselves rather than established a business.  It is the entrepreneur’s role to ensure that the business becomes profitable and maintains profitability.

Here are some do’s, don’ts, and warning signs:

DO create a formal business plan to guide you towards the future you want.  Remember the old adage, “If you fail to plan, you plan to fail.”  Without a plan you will react to current situations without seeing the big picture.  Imagine driving across the country on back roads without a map.  If you always take the turn that looks like it leads west, you will find yourself doubling back, on roads that dead-end, and on roads that follow a river rather than cross it.  The map (plan) allows you to get where you are headed with minimum fuss.

DO update the plan to reflect current conditions.  A construction subcontractor following an original plan would have kept expenses at original levels as business dropped, and would find themselves out of money with few options open to them.  If that subcontractor modified the plan based on current conditions, they would have reduced expenses and maintained a cash reserve.  That cash reserve could then be used to shift into alternate markets until conditions changed (perhaps advertising painting services for homeowners rather than depending on all work to come from builders doing new construction).

DON’T make decisions in a vacuum.  Seek other opinions, guidance, and insight to help you see the ‘big picture’ as well as think ‘outside the box.’  If you have an advisory board (see my 10/08/07 Blog “So Who Asked You?) seek their advice.  You can also discuss the situation with the Small Business Development Center (www.sbdc.unf.edu), SCORE (www.score.org), fellow business owners in the local chamber of commerce, members of trade associations, and so on. 

DON’T assume that “everything will go back to the way it was,” or that “the worst is over.”  We hope that will be the case, but do you want to bet your future on it?  You may have to change to adapt to the future.  When IBM introduced personal computers, both Digital Equipment Corporation and Wang Computers ignored the trend and continued making large centralized computers saying, ‘PC’s are a fad and won’t last.  The future is in large computers.’  Both Digital Equipment and Wang were bankrupt in a few years.

DO ensure that investments you make in your business in terms of both money and time have an ultimate payback.  In addition to your business plan, a good accounting system can make the difference between failure, mediocrity, and success.  I have seen many companies with multiple product or service lines vainly try to increase volume to remain profitable.  Analysis has shown that in many cases volume was up on the line with minimal profitability or even loss, while profitable lines were not promoted.  Make sure you know your costs and profits by product or service line.

DO seek input from and discuss potential changes with employees.  In many cases they will be able to contribute ideas on how to reduce costs by streamlining your processes.  They may also be willing to invest in your business if there is a reasonable plan and suitable reward.  Actions taken by some small businesses during the current slow economy include:

• Reducing salary and pay rates in exchange for a profit-sharing plan.  While it means less income now, employees avoid lay-offs and will benefit when the economic cycle turns up again.  The business benefits because the employees have an interest in its success and will work to maximize its profits.
• Switching to a three or four day work week to avoid layoffs while allowing employees to seek part-time work on a scheduled basis until sales levels increase again.
• Sharing cost savings from reduced fuel usage with employees who drive company vehicles.  Employees can affect costs in regard to driving style, idling time on jobsites, and trip routing.

DO consider customer needs in the changing economy.  If you have multiple customers in an area some distance from your site, their individual cost of travel to your business may deter them from making the trip and could incite them to find a competitor who is located closer to them.  If you were to make deliveries to their area weekly, you could announce “free delivery” which would be a benefit to them, while minimizing your cost by grouping the deliveries.  Although you have added a cost, you have retained sales that you might otherwise have lost.

DON’T think only of what you do, DO think of what needs you serve.  A deli that had a customer base of construction workers DIDN’T think, “we make sandwiches for workers who stop in to pick up lunch.”  They DID think, “we make homemade sandwiches and lunch plates.”  This enabled them to shift to lunch box deliveries to local offices and catering of lunches for group meetings ranging from service clubs to corporate in-office training sessions.  This shift has enabled them to replace most of the business lost as construction slowed, and will in fact enable them to grow larger than they originally were once that activity picks up again.

WARNING SIGNS: Seek help for your business if…

• Volume is up but profits are down.
• You have multiple product or service lines but don’t know the profitability of each.
• Your customer base has eroded and you are waiting for it to return.
• Your competitors have announced new lines of business but you are doing “the same old thing.”
• You are worried about costs and sales but have not sought input from key employees.
• Your business has not yet been affected by economic conditions and you think “it won’t happen to me.”
• You do not have an updated business plan.

“Nobody ever lost money taking a profit.” Bernard Baruch