The one universal phrase that defines the outlook of small business owners during these trying economic times is one that has been adopted by millions. Times are tough. I have had the unfortunate pleasure of seeing small business owners struggle through the muddy waters of what we can now affectionately call the Great Recession. I have been on the lending and franchising side where I have provided assistance and suggestions for small business owners while watching the outcome from the proverbial bleachers and I have also watched the game from the field playing as a small business owner myself. Here are some of the tough choices and the financial impact that I have been involved with as an advisor and an owner.
Open Up to a Broader Client Base
In a small diner business, sales growth is already a tough mountain to climb, but add the difficulties of decreased salaries and increasing gas prices you have a recipe for small business disaster. You see in the diner industry, most of your business comes from repeat customers. Many of these customers are truck drivers, couriers and deliver people that have become faithful diners at your establishment. After one mid-sized trucking company went under, the diner experienced a sales drop of almost $750 per week. This may not sound like a lot but when $500 per week is approximately 20% of sales, you’re in trouble. To counter this, the business began a clever marketing strategy. You have to appeal to the need of your customer base and thus the business began pushing popular and less expensive breakfast selections. By offering 3 different breakfast platters for only $3.99 as opposed to the $4.99 normal price, the business was able to retain many of the customers that were there before. Also, the diner sent out flyers and coupons with its current customer base to attract new customer in the area. This did result in more plates and a smaller profit margin, but the trade was getting back the $500 per week in sales that were lost and no jobs lost.
Market Products over the Internet
We had a small retail business that sold lower priced off-brand electronic items. These products were things that people wanted, but couldn’t actually afford the big name brands. At one point the business suffered a 30% drop in sales. Being in a small town that was driven sustained primarily through the income that workers received from manufacturing plant that was experiencing layoffs, there simply was not a new customer base in the area to attempt to draw in new business. The approach to fix this was simple. Using various auction style websites, we were not only able to draw in new customer sales, but we were also able to put baseline pricing out on the items let the bidders pay what they thought was a fair price. This resulted in a much larger profit margin for many items. The business was also able to benefit from a small increase in revenue from the cost of shipping and handling. The ending result was not only getting back the 30% drop in sales, but adding in an additional 40% on top of it and an increase of approx. 10% in profit margin.
Unfortunately, clever ideas to increase sales don’t always work and you have to cut many costs. We experienced a sales drop of approximately $2,500 per week and we needed to reduce costs quickly to salvage our operation. We started with some obvious choices. We cut $75 per week in outsourced cleaning costs and had required the employees to assume those duties. We were spending about $200 per week in postage on the mailing of invoices. We began scanning and e-mailing the invoices and eventually paid a contractor $1,500 to set it up so customers could go online and get invoices. We changed our cell phone, internet and banking service providers and these combined for about a $800 per month savings, but we were still in trouble and had to cut head count. We eliminated two heads from our administrative group and reassigned the duties to the remaining staff. This brought us back to break even.
The Diner and retail business are still going strong today. We eventually sold the marketing business to a competitor as they were interested and we were steadily battling decreasing margins. The moral of this story is that small businesses can survive, but you may have to alter your original business design and premise to make it through the Great Recession.
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