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By Wayne Rivers This article is Part 5 of a series outlining the 90 best practices of successful family and closely held businesses and the actions which allow companies to weather economic storms. The 90 best practices don’t necessarily appear in order of priority, and, due to your particular circumstances, some of the practices will be more or less valuable to your closely held company. They will not be presented as exhaustive analyses; rather, each article will touch on a few of the best practices with a very brief explanation. More depth on each of the topics is as close as doing internet research or making a phone call to The Family Business Institute. As you read the series of articles, please try to select the highest impact practices upon which to focus. Trying to get your mind around all 90 best practices simultaneously would be like trying to enjoy a drink of water through a fire hose. The best practices will be concentrated in five distinct categories: 1. Cash flow, 2. Belt tightening & cost reduction, 3. Processes & systems, 4. Opportunities, and 5. What to avoid or of what to be wary. We hope this series is beneficial in helping you prosper in tough times. 22. Protect customer relationships (Opportunities) When new business is plentiful, its easy to take old customers for granted. Now, however, that most certainly is not the case. Make sure you are devoting sufficient tender loving care to your existing customers. Sometimes this is referred to as “super-pleasing” your customers. Since new business opportunities may be limited in the near future, super-pleasing existing customers and going back to former customers with whom you haven’t done business in some time represents both a must and an opportunity. 23. Establish internal best practices and knowledge sharing (Processes & systems) One of the blessings of a recession is the company is not quite as busy as it was a couple of years ago. This means there is more time —a little anyway — to work on internal systems and processes. One of the highest payoff areas is to put your people together so that they can learn from one another and share important knowledge. For example, let’s assume a funeral home has one funeral director who scores consistently higher than his peers in customer satisfaction. Wouldn’t it be great for you to be able to turn that funeral director into not just a great employee but also a teacher and maybe even a developer of other great employees? Its not to say that one great employee should be able to mandate to others how to do their jobs; each employee no matter how rigid the system will execute the job in a slightly different way. What this does is allows employees to pool their resources in an effort to create a system which would allow not only current funeral directors to do their jobs more effectively but also future funeral directors who come into the company’s employ. What internal best practices and knowledge sharing can do for you is to create the “XYZ Company Way.” 24. Don’t try to do too much too fast (What to avoid or of what to be wary) During hard times, change is quite necessary. However, as the current administration in Washington seems intent on proving, it is certainly possible to try to ram too many changes into place too quickly. There are two primary problems. The first is that, with the news almost uniformly negative right now anyway, you could scare the wits out of your employees who are desperately seeking stability. The second is that you risk losing focus on top priorities. If you have 10 balls in the air at one time, how can you have the luxury of focusing on any one of them? When making changes, it’s best to make one at a time, digest them a bit, then move on to the next. 25. Don’t do too little too slowly (What to avoid or of what to be wary) This best practice is the obverse of the previous one. There are mature businesses out there which have never really been through times like these. Some are too new to have experienced the decade of the 1970s with all of its economic travails, and some have been so successful and robust they’ve simply shrugged off previous slowdowns. Not having a historical track to run on is an issue, and some of these closely held businesses run the risk of not taking action swiftly enough to stave off disaster. At a meeting with an 80 year old father and a 57 year old son who ran a wholesale business, we talked about challenging issues facing them for over two hours. At the conclusion of our visit, the dad looked at his son and asked, “What do you think we ought to do?” The son emphatically replied, “I don’t know what to do first, but we better do something!” Dad replied, Well, let’s give it a little more time.” Sadly they waited too long to begin turning their company around, and they’re out of business today. There’s a fine line between doing too much and doing too little, and one can rest assured it can be a death sentence to do nothing at all in hard times. Once the need for change becomes obvious, move decisively. 26. Focus on product or service margins rather than top line sales (Cash flow) It’s easy in hard times to take almost any new business that comes in your door. However, taking any business in order to keep your employees busy can be a fateful mistake. Family and closely held business leaders need to truly understand how they make money and what products or services deliver what margins. This is, unfortunately, pretty rare. We recently asked a CFO — a trained and experienced CPA — what his company’s average gross margin was, and HE COULDN’T ANSWER THE QUESTION! It’s not an academic exercise. If a company takes on work with insufficient gross margins, that results in operating losses. If the operating losses are compounded in hard times — as they often are — with slow customer collections, that can result in catastrophic cash flow shortages. Declining margins can also signal a breakdown in the control of production costs. This is especially a factor when sales are tied to long term pricing contracts. To stay afloat in a recessionary period, companies absolutely must accurately know their costs and margins and protect them at all costs. In every downturn, some companies not only survive but prosper. We earnestly hope this series will help you reach your fullest potential. The 90 Best Practices for Recession Survival (and Maybe Prosperity): Part 6 Wayne Rivers is the president of The Family Business Institute, Inc. FBI’s mission is to deliver interpersonal, operational and financial solutions to help family and closely-held businesses achieve breakthrough success.
March 2009
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