During a downturn in the economy the overriding goal of the Chief Financial Officer and management team is to defend the bottom line or profitability of the company. At a minimum you should achieve break even. The economy ebbs and flows like the tide. During the good times a company should generate profits and pay down debt. During a slow economy they should do everything they can not to give up the profits they have earned.
How to Defend the Bottom Line
So once you find yourself in an economic downturn what should you do? You should first recognize that you can’t save your way to profitability. Cutting costs though a useful tool will not get you to your goal.
The first step you should take is to get a good handle on cash and cash flow. You should prepare a daily cash report and a twelve month cash flow projection. You cannot run out of cash! Most managers fail to shift their focus to cash management until they have run out of it. By then it may be too late.
The next step may seem counter intuitive but is key to prospering in a downturn. You should increase your marketing expenditures and efforts. Most companies do the opposite! They slash advertising expenses and lay off salesmen to cut costs. If anything you should be doubling up on your sales effort! In a downturn there are still sales transactions taking place. There are just fewer of them. To maintain your revenue stream you need to get a larger percentage of the market. That takes more effort, not less!
Finally, to survive a downturn remember rule number one: Don’t lose money! So restructure your costs to achieve break even with the revenue stream you are generating. The goal is to survive to fight another day! Improve your pricing – and your profits– by downloading the free Pricing for Profit Inspection Guide.
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