Operating in Lean Times

Business, like life, is cyclical. There will be feast-times when you are flush with cash, and there will be famine-times when the cash flow is limited. How do you operate a business when the feast and famine cycles are so unpredictable, and you don’t have access to any significant capital from a lender.

FIRST, know that you will experience business downturns. It is inevitable. The economy is never all good or all bad, so business will never be all good. Prepare during the good times for the downturns. Set aside a portion of your profits for operating expenses. The exact percentage is your decision based on how capital intensive your operations are. Some businesses can operate leanly—a few team members, low overhead. Others are capital intensive. Construction, for example, is a capital-intensive business. It requires upfront capital to cover payroll and job costs until you get a milestone payment, which can occur many months after starting a project.

NEXT, avoid spending to appear as if you are operating a successful business. Appearances can be deceiving, and they can bankrupt your company. You don’t need the expensive company retreat or meeting. You don’t need lavish customer thank you gifts. You don’t need the office space in the luxury building. Always operate as leanly as possible. The frills aren’t necessary for business success, customer satisfaction or employee retention.

THEN, scale back. Examine your overhead. Cut everything that does not contribute to achieving your business priorities. Every expense should either directly impact sales or ensure you can operate efficiently. Any other expenses are not worth your hard earned money.

FINALLY, know that lean times shall pass, but the responsible practices you put in place when times are good will ensure you have the resources to carry you through the lean times.

Here’s to more business birthdays!