Battling the innovations and lower wages of foreign competitors has long kept American manufacturers on their toes. But faced with these overseas challenges, many have found inventive strategies to stay ahead. Today, however, what is perhaps the greatest threat to American manufacturers is not foreign, but domestic: it's the U.S. economy.
Business owners in all industries find themselves pressed to keep up with uncertain economic conditions and the rising costs of doing business. In fact, they cite these two concerns as the greatest challenges in growing their businesses, according to the most recent Small Business Monitor, a semi-annual survey of business owners conducted by American Express OPEN.
But even in an economic downturn there are opportunities to be had -- if you're prepared to take advantage of them. The following tips will help you assess where you stand and help you prepare for the surprises and opportunities the current market could send your way.
Plan Not to Fail
The real difference in who weathers the storm and who doesn't often boils down to one factor: planning. Although no one sets out to fail, business owners sometimes don't have explicit enough plans to help them avoid failure. The trick is not only to recognize your challenges, but to create a plan by putting challenges -- and potential solutions -- in writing.
Write down ten specific challenges that your business faces, along with some possible solutions that could help you overcome them. The more specific you can be, the better. No doubt some of your challenges will immediately be obvious, but others may require devising some "what if" scenarios to pinpoint potential weaknesses in your business. For example, what if the vendor you rely on exclusively for components or raw materials dramatically raises prices, or worse yet, goes out of business? The relatively short amount of time that it will take to ponder your biggest challenges and brainstorm solutions could make all the difference between preempting crisis and falling prey to it.
Reassess Budgets and Major Expenses
For any business owner who's thinking about how to face challenges, one subject is sure to come up: cash. To keep cash flowing in your business, take a look at how successfully you predict expenses and assess whether you're allowing enough leeway to cover the unexpected. While running a little over budget in one area may not be a crisis, doing so consistently can quickly drain cash from a business. To avoid this situation, budget pessimistically, because a little padding can go a long ways in helping to accommodate the economy's unexpected turns.
With realistic budgets in place, aim to cut recurring expenses. Look at your business relationships and obligations, and question whether they may hold untapped opportunity for savings. There may, for example, be room to renegotiate a variety of contracts and agreements, such as leases or other agreements.
One possibility is to try to renegotiate payment terms with key vendors. Many vendors will extend valued customers trade terms that reward early payment with a small discount. You may also be able to negotiate slightly longer payment terms that will allow you to hold on to cash a little longer.
One way to gain trade-like terms from vendors and eliminate the need to negotiate is the PlumCard, a new financing tool from American Express OPEN which offers small business owners trade-like terms on virtually all purchases. The Card provides business owners with flexible trade-like terms the option to defer payment for two months interest-free or receive early pay discounts.
Build in Options for Yourself
The real test of the strength of a business is whether it can produce cash to cover the unexpected, so be ready with a few options. First, build a cash reserve. It's important for every business to have up to six months' cash on hand. Each time you're able to reduce spending in one area or another, you might consider whether at least a portion of your savings could be diverted into your cash reverses. But whatever you do, don't simply wait until you have extra cash, because it may never happen. Devise a plan now that will systematically build savings over time. If building a reserve seems impossible, consult your accountant or another trusted financial resource to build a workable plan.
While not a replacement for cash reserves, financing can also be an important tool for dealing with unforeseen challenges or opportunities. Just like building reserves, advance planning is the best way to establish financing. That's partly because it simply takes time to line up several sources of financing. But you also won't want to wait until your business is in need of cash, because banks and other institutions may be more likely to extend credit to your business before cash gets tight or business slows.
When you do rely on credit, make sure you use it wisely. Short-term financing options such as lines of credit short-term, loans, or credit cards are meant for short-term cash needs. Likewise, long-term or secured loans are intended for the purchase of long-term investments.
In a down economy, being prepared for change is a business' best asset. Fortunately, small businesses are known for their agility and adaptability, and manufacturing businesses are no exception. But whatever the economy has in store, one thing is certain: a downturn is always followed by an upturn. So build a plan to face your challenges, keep budgets realistic, and do everything you can to keep enough cash at your disposal, because these moves will help see your business through the downturn and will also position you to take full advantage of an economic rebound.
Raymond Joabar is senior vice president and general manager for American Express OPEN, the nation's leading issuer of payment products for small business owners. http://www.openforum.com www.plumcard.com.