BusinessRX Blog

Ten Business Survival Strategies

February 26, 2009

1) Define Your Strategic Objective
Define your vision of the business as it must be in order to achieve your Primary Aim--your vision of what the purpose of your life is. Your business should serve this vision. Your Strategic Objective is a statement of what the business will look like when it's done. It is this vision that will keep you focused.

2) Define the Results You Want
A good economy offers some slack. In a shrinking economy, the fundamental questions don't change, but your intensity of focus must increase. You must have clearly defined results to keep you on track.

3) Engage in Strategic Work
Getting the results you want through other people is key. Strategic Work is most critical during times of recession because your business must operate at peak efficiency.

4) Systems, Systems, Systems
Establish and implement systems for every aspect of your business. Especially important in times of recession are systems for comprehensive financial reporting. These will enable you to make wise decisions regarding cash flow, and to avoid reckless spending.

5) Quantify Key Processes
Thoroughly understand the exact, quantified impact that key systems, processes, initiatives and innovations will have on your business. How many new clients do you need to cover losses? What can you do to trim variable expenses? Is every product a viable income-producer? Evaluate these key aspects of your business in terms of the contribution to the income and value of your company. Note that E-Myth training programs teach you how to manage these Key Strategic Indicators.

6) Client Acquisition
Make sure you know exactly who your customers are. Find the answers to the following questions too, and act upon that information: What is your product in the eyes of your customers? Are your Client Acquisition (Marketing) methods consistently effective on a daily basis? How can you more efficiently communicate your message to more of your Target Market? Where can you strengthen your follow-through with your aftermarket and referral programs?

7) Client Fulfillment
Remove or find ways around any barriers preventing your customers from getting what they need. Always keep your promises to your customers in the most cost-effective manner possible.

8) Leadership
As the owner, your leadership is pivotal. Think about what you can do as the leader of your company to foster and enhance an awareness of your vision in your employees. Consider well-structured, regularly-scheduled company meetings as a means for creating a stable and cohesive work environment.

9) Seek the Truth
Diligently dig down to the truth about your business. Now more than ever, you must think with clarity and purpose, and make the necessary adjustments to survive--even thrive--in a challenging business environment.

10) Listen, Learn, and Innovate Whenever Possible
Keep your eyes and ears open. You never know where the next great idea is going to come from. It is important that you don't let the bleak economic environment prevent you from innovating. Innovation may very well be more crucial now than ever before.

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Need New Customers in this Recession?

February 19, 2009

We know things are tight, tough, and terrifying, but we must move forward. Our suggestion is that there are industries that are less affected by this recession than others. Some industries are even thriving. Let’s start with Benjamin Franklin who said, “In this world nothing is certain but death and taxes” and go from there. These are the industries that we believe are good targets for 2009:

• Death Industry (funeral homes, embalmers, transport specialists)
• Accountants & Tax Preparers
• Health Care Industry (doctors, hospitals, hospice, pharmacy)
• Grocery and Convenient Stores
• Education & Daycare (daycare, learning centers, community colleges)
• Thrift Stores
• Home Improvement & Repair (plumbers, roofers, etc.)
• Auto Mechanics
• Energy (utilities, alternative fuels, gasoline)
• Environmental (go “green” baby)
• Security firms
• Hair Salons
• Love, Dating and Marriage
• Rent-a-Lifestyle (appliances and electronics)
• Pay Day Lenders
• Pawn Shops
• Gun Shops
• Bankruptcy Attorneys
• Debt Management & Collectors
• Temporary Staffing Agencies
• Storage Units
• Alcohol Stores and Cheap Dive Bars
• Churches and Places of Worship
And finally,
• Big Government

This is an interesting list of necessities and places we turn in the face of economic uncertainty. Someone said “Recessions are amazing corrective mechanisms for weeding out the redundant, the inefficient, and the weak links of an economy.” We believe in survival of the fittest and hope you survive. In surviving, it is also important to remember the words of President Eisenhower - “Our economy is the result of millions of decisions we all make every day about producing, earning, saving, investing, and spending.”

We hope that all of you have a very prosperous 2009 and beyond.
 

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Profit and Pricing

February 12, 2009

Several of our clients have experienced significant revenue growth in the past year; however their profitability had not increased until they started using custom financial models to help them make better financial decisions. In most of cases, these companies lowered selling prices to obtain the increase in revenue without understanding their price elasticity, fixed cost structure and variable cost structure. To better understand this concept, we first need to define some terms.

Price elasticity of demand measures the nature and degree of the relationship between changes in quantity demanded of a good or service and the changes in price. When prices fall, the quantity consumers demand typically increases. For example, plasma and LCD televisions have fallen dramatically during the past couple of years and the demand by consumers has spiked.

Costs and expenses of an enterprise fall into three categories - fixed cost, variable costs and semi-fixed costs. Total variable costs change with quantity, but remain constant on a per unit basis. An example of variable costs is the raw material cost to manufacture a particular product. If a company produces a thousand units compared to one hundred units, its total variable costs will be ten times more.

Fixed costs are constant in terms of dollars whether the company produces a thousand units or a hundred units; however the cost per unit declines with increases in production because the fixed costs are absorbed over more units. For example, if a company’s total fixed costs are $100,000, in our previous example, the cost per unit for a thousand units is $100 compared to the cost for one hundred units is $1,000. Fixed costs are rent, depreciation, administration, etc.

Semi-variable costs change with volume, but increase in fixed increments. For example, demand for product exceeds the capacity of the current manufacturing equipment, so the business has to purchase additional equipment. In purchasing the new equipment, the fixed costs will increase. Another example is that a company adds a 2nd shift that produces the same quantity as the first shift. In this example, the variable costs increase.

Understanding the relationship between these costs and the price elasticity are critical to maximizing profitability. We have helped several of our clients maximize their profitability by identifying these relationships and the key drivers to their businesses. We develop a business model for that particular business so our client can play “what if games” to determine how to maximize their profitability. These business models are a mathematic simulation of what should happen in the real world. These models help our clients know when to lower or increase pricing, and whether to expand or contract certain business activities. It also helps determine whether certain activities should be performed in-house where the cost is fixed or outsourced where the cost maybe variable.

Keys to maximizing profitability are the relationship being the dollar drop in selling price and the corresponding decrease in fixed costs per unit; and the increase in demand for the product or service and the variable profitability per unit.

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