HOLY #@X&^%*!!!! (Feel free to fill in with whatever string of expletives work for you.) And we all thought Enron was bad.
This is bad, and it is not going to get better anytime soon. State budgets are
getting cut, companies are foregoing any big capital outlays, banks won’t lend
you a dime, and vendors are dubious about extending credit. This time around
it’s not just the struggling companies that are going to go down - some solid
decent companies are going down too.
In the midst of all of this you still have a company to run, one that you would
like to see still standing when all this passes in three to five years.
What to do in the short and medium term to weather this perfect storm of finance?
First, manage what is in your control. You can’t change the stock market. Banks
(those still standing) are over-cautious. Easy credit is no more. You want a
loan? Good luck! Ask your vendors to extend
you more credit? No way! But you can manage your costs. Look at your top 10 biggest expenditures
every month: Payroll? Material? Trucks? The warehouse? Make a list and start
You don’t have to wield a machete. Small cuts to your major expenses (5%) can
make the difference between being solvent and really struggling. If business is
down, there is no reason for anyone to be clocking overtime. If you still need
to bring down the payroll cost, get creative with the employees you want to keep.
Some employees may be enthusiastic about working a 32-hour week for the next
three to six months. (Perhaps they have a small child at home or a sick
parent.) If there are a few employees who haven’t been performing, there’s no
reason to keep them now. Cut back on health care. Most any employee I know
would prefer having a job with less health care than no job (and no health
care). Oh yeah, dump all the freebies and other bennies - for employees,
customers, vendors, whomever. Freebies consume badly needed cash and they
aren’t getting you any more loyalty.
It is time to consider repairing trucks rather than replacing them. Step up the
maintenance program so your trucks will last a little longer. Regular tune-ups
and weekly checks of the tire pressure will save on gas. Implementing rules
like “no idling” at a client’s site will help too. Set up a challenge to your
drivers: Each week the one who used the least amount of gas gets some
Now is the time to get very close to your favorite vendors. Pay them on time.
Work with them such that you are not an expensive, time-consuming, late-paying
customer. If you can help them save money (scheduled deliveries, on-time
payment, etc.), they can pass a little of that savings on to you.
It seems hard to imagine how you are going to save money on the warehouse.
Start by using less of it. Shut off those parts of the warehouse that are
infrequently used. Why heat or light an area that no one goes into? Rent out
that excess space if possible. Now that’s a total cash win. (Save money AND
Look at your existing inventory. When business was booming it seemed OK to keep
lots of material on hand. Now you can cut your stocking amounts by 10% across
the board. You will get a one-time bump
in cash and you will have a larger section of the warehouse you can shut down.
We’ve all heard the expression, “Cash is King.” It’s much more than a snappy
phrase. In times like this, you don’t want to be caught inventory- or
warehouse-rich and cash-poor. You can’t
pay your employees in valves or pay the rent in pipe. Cutting costs results in
cash going directly to the bottom line - and right now it is ALL about the Benjamins.
Cash Is King
November 1, 2008