Concentrate On Your Business In Good Times And Bad

Written by Joe Driscoll

November 25, 2009

“I don’t care what the other boys are doing, you’re my son”, was my mother’s standard response whenever I attempted to rationalize my actions in light of the current trends.

Depending on who you listen to these days, you can get some pretty contrary predictions as to coming trends in the economy. There are those that are predicting a great depression in 1990 and those that foresee robust economic growth. There are some that see indications of lowering interest rates and others certain of higher inflation. Recently there was a prediction that the world was coming to an end and last week Silicon Valley was described as a potential “electronic rustbowl”.

In light of the conflicting prognostications for the general economy, maybe a variation of my mother’s advice is appropriate. “It doesn’t make any difference what the other businesses are doing, it’s my business and I’ll make it work in good times or bad.”

Good businesses prosper in hard times and poorly run operations can falter in good times. Don’t become so concerned about the broader economic trends over which you have no control, that you neglect to take advantage of the opportunities over which you have total control.

In good times or bad, cash flows into and out of your business. Your business is a basin with a spigot for the cash to flow in, and a drain for the cash to flow out. Your ability to sell governs the flow from the spigot and your ability to manage expenses controls the drain. Keep a close eye on the relationship between the spigot and the drain to maintain a full basin.

Everybody in a business is a sales person. If it’s your business, you are the most important sales person. Never delegate that responsibility. The rest of your sales people need to interact with you. They need your support and encouragement. Don’t become so immersed in financial planning, reorganization, or diversification that you forgot your responsibility to maintain the flow through the spigot.

Instead of focusing on a distant economist’s predictions for the direction of the general economy, get input from your own sales people on where your market is headed. They are on the front lines of the battle, their intelligence is the best. You may end up altering their projections in light of historical information and your overall perspective, but their inputs are invaluable in establishing meaningful goals for their performance and the future of your business.

In good times or bad, a sale is never a sale until it is paid for. Particularly when times are slow, there is a tendency to relax credit standards to maintain volume. In actuality the opposite should be true. It takes too much work to make up for the uncollected receivable to justify the risk. An noncollectable receivable interrupts the flow and increases the drain.

It is much easier to lower prices than to raise them. Pricing products and services too inexpensively is common mistake for the beginning business person. Price cuts that are “going to be made up on volume” have caused many a financial hangover.

Cash flows down the drain as payments or products and is reported on your financial statements. Pay attention to your payments, primarily the checks your business issues; your products, usually in the form of the inventory that you maintain; and read your financial statements.

For one month out of every six months, personally review and sign every check that leaves your business. If you don’t take a close look every now and then, you’ll be surprised at what’s going down the drain. If there are too many checks, sign only those above a certain dollar value. You will begin to see patterns. I guarantee that you will make several money saving decisions during a month of check signings.

In most businesses, during good times or bad, your inventory is one of your largest assets. Show it the attention that it deserves. Personally inspect your inventory, make sure that it is counted and reported accurately on a regular basis, and insure that it is appropriate and in proportion to your current activity levels. Don’t allow your inventory to become the resting place for all your mistakes. Slow moving inventory and noncollectable receivables are a much greater danger to a business than a slow down in sales.

The primary purpose of your financial statements is to assist you in managing and controlling your business not to keep your accountant employed. Learn to read and understand those statements. Make sure that you get the necessary information to make decisions on a timely basis.

The future course of economic activity will be determined by the millions of individual decisions that are made everyday. This is the “invisible hand” that determines the collective trend of the economy. Don’t pay too much attention to what the others are doing, because it’s your business that counts.

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