How to Survive Economic downturn by Being Flexible

The difficult economic environment in the last couple of years has forced many businesses to close their doors and ruined the dreams of many people. While it has affected almost all businesses, it has particularly hit hard to those who were not flexible.
While it may be too late for some businesses to do anything about it now, if you are one of those who have survived or are just starting now is the time to think about how you should prepare and respond to the downturn that refuses to go out.

The key to surviving the downturn is to be nimble and flexible. Those, who can react fast by drastically lowering their expenses to maintain profit or reduce breakeven point, will be the last ones standing when storm has passed. There are number of ways you can achieve this flexibility. We have outlined them below after talking to number of business owners who have survived and the ones who could not. We hope that by learning from the experiences of these folks you can be better prepared.

  • Convert fixed costs to variable costs.
    All expenses in the businesses can be categorized as either fixed or variable. As the names suggest fixed cost do not change with varying sales or production; while variable costs do. The key to gaining flexibility in your expenses is to convert as many fixed costs to variable as possible. The primary fixed costs for most businesses are labor, real estate and equipments. You should explore how you can manage your business so that you can increase or reduce the resources required in response to changing conditions. This will help you lower your commitments and gain flexibility. We will explore how to do this in subsequent posts.
  • Do NOT sign long-term contracts.
    By signing long-term contracts many business owners put themselves in the corner during the downturn. As sales decline, monthly payments for these contracts take up more and more of your sales leaving very little or nothing for profit. Besides, you cannot take advantage of lower costs or newer technology when they come along if you are tied up with the existing contract.
    You can avoid signing longer term contracts by offering to pay a bit more. If you do have a long-term lease commitments now may be a perfect time to renegotiate with the vendor. With their business hurting due to downturn, the vendors will be happy to renegotiate with more flexible terms.
  • Always include an exit or renegotiation clause.
    Many service providers make you sign a long-term contract with them to secure your commitment. Our advice to business owners is to avoid signing these contracts in the first place as mentioned earlier. If you do have to sign the contract make sure you include a clause so that you can exit the contract with zero or minimal penalty when market conditions change. At the very least you should be able to renegotiate the term or payment or both based on the new economic reality.

What other approaches have you taken to gain flexibility in this downturn? Would you like to share with us and our readers?

Image Courtesy:   mikebaird

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  1. It has been a difficult time and we are all to congratulate ourselves for simply surviving. Let’s hope there is some blue sky ahead…