Rider (N.J.) Prof Provides Small Business Survival Tips
Some small businesses may be experiencing a slowing economy for the first time, and Dr. Ron Cook, associate professor of small business and entrepreneurship at Rider University in Lawrenceville, N.J., warns them that economic uncertainty can be riskier for them than it is for a larger company.
Also director of The Small Business Institute at Rider, Cook points out that small firms may be more dependent on one or two customers, may have fewer cash reserves, and can have fewer options for reducing overhead or absorbing costs. This becomes a national concern since small firms are critical to the country's economic well-being. According the U.S. Small Business Administration, small firms make up over 99 percent of all companies, employ over 50 percent of the workforce, and are responsible for almost all net new job creation.
So what can small business owners do to help them weather the economic storm?
"First, follow a simple rule -- focus on your business as if it was facing a decline, and figure out how to strengthen it. Strengthening can incur by using both a strategic and tactical approach," says Cook.
"The strategic philosophy is to have firms focus on their competitive advantage. Small business owners have little control over broad economic trends. Their emphasis should be on how to continue to be the best choice for their customers."
According to a recent study by the Bain Consulting Group, the tool most used to help firms navigate economic turbulence was strategic planning. Cook believes that translates into two words for a small firm -- business plan.
"Owners should use a business plan to strategically maintain, and then strengthen their competitive advantage. When the plan explains the business concept -- how to market it, how much it costs, and what the cash flow will be -- the owner can take tactical steps, like controlling costs and recognizing new opportunities," he says.
Business plan expert Paul Belliveau describes a business plan as the enabling legislation for a company to pursue growth and long-term viability.
Controlling costs and looking for new opportunities should also be done regardless of the economic conditions. However, growth and good economic times can hide a lot of waste, and Cook says that firms often don't think about cutting costs until the good times end.
"The first rule on cutting costs is understanding cash flow. To do so, an owner needs to know their costs," says Cook. "Many small businesses never force themselves to identify which expenses are essential until the money becomes tight."
The following are ways Cook believes small businesses can improve their bottom lines:
1. Outsource vs. Insource. "When does it make sense to use outside contractors or temporary workers versus your own people? Conversely, are you paying outside services best done in house? If you are, are you depriving yourself of essential information to understand the workings of your business?," questions Cook.
2. Technology. "Consider computer systems that can answer phones, monitor inventory, track payroll, etc.," he says.
3. Shop around. "Check your phone bill and compare rates using internet sites like www.saveonphone.com, which compares long distance rates nationally. Practice energy load management -- running power intensive equipment at off peak times to see if you can get off peak power rates. Get quotes from multiple sources and buy in bulk, when possible," Cook says. "Bottom line -- is there a better deal for you?"
4. Watch out for expensive deductions. "Deductible does not mean free! Deductible means it costs you whatever you spent, less the tax rate you pay," he says. "Remember: if your profit margin is 10 percent, a $5000 after-tax expense needs $50,000 in sales to pay for it.
"The other side of improving a firm's competitive advantage is market expansion. It increases sales by selling more to existing clients, adding new clients, and/or offering new products/services. The business planning process can help do this too."
A small businesses that sticks to the plan can achieve a consistent, positive, operating cash flow, according to Cook.
If you're interested in contacting Cook, his office phone number is 609-895-5522, while his e-mail is [email protected].
Feel free to also call us at 814-867-1963, or e-mail me at [email protected] if you have additional questions of needs. Dick Jones Communications now assists Rider with its public affairs work.
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