By Wayne Rivers

This article is Part 9 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.

40. Do FORECASTING to get ahead of the recession curve (Processes & systems)

Many family business leaders, especially in this time of “The Great Recession,” have found themselves reacting to declining business conditions. It’s important for executives in family and closely held businesses to try to get ahead of the curve by becoming better at forecasting. While no one has a perfect crystal ball, there is plenty of industry specific, geography specific, and general economic data out there to allow you to predict with some accuracy where your business is likely to be in 12 months. For example, in one area where The Family Business Institute has a concentration of clients, we’re advising them to expect that in 12 months time their sales will be about 50% of what they were in 2008 with about half of their normally expected margin. If that’s even remotely the case, they’ll need to make some serious operational adjustments. By forecasting changes, either up or down, likely to affect your business in the future, you can get ahead of the curve and begin to develop plans for what specific management actions you’ll need to take rather than just reacting to current economic conditions.

41. Develop CONTINGENCY PLANS (Processes & systems)

Corollary with forecasting is to develop contingency plans. What will you do if your sales decline by 50% over the next 12 months? What positions will you cut? What equipment will you sell? How will you use underutilized space in your building? Contingency plans allow you to get ahead of the curve and have specific actions planned for swift implementation. For example, you’d never see an NFL team on Sunday get behind in a game without having a backup game plan to adapt to conditions and try to make rapid improvement. Likewise, our brave soldiers always go into an engagement with plans and backup plans – no battle ever develops perfectly according to plan. Business is the same; you need to plan, but you also need to know what you’ll do if Plan A doesn’t materialize.

42. Slow down accounts payable (Cash flow)

This recession best practice will no doubt ruffle the feathers of many family business owners who take great pride in never having been late on payments in the history of their companies, but today’s reality is that you may absolutely need to slow your accounts payable to better match the inflow of funds from your receivables. If you’re pushing your payables out the door in 10 days to take advantage of trade discounts, and yet it’s taking you 60 days to collect funds from your customers, you are in effect, serving as a financial intermediary. Unless you’re being compensated for the use of that money (and let’s face it, that’s hard to do for many reasons) this is simply an unrealistic business practice given the depth of the current recession.

43. Increase employee accountability (Processes & systems)

While things are a little slower, it may be time to develop greater employee accountability by instituting things you’ve probably wanted to for some time. These measures would include job descriptions and regular employee evaluations. In our new book, The Top Nine Reasons Family Businesses Fail – and the Eight Building Blocks for Creating a SUSTAINABLE Closely Held Company, we provide a do it yourself methodology for undertaking employee evaluations. There is also quite a bit of discussion on developing job descriptions. These don’t necessarily have to be perfect in order for you to get started; you can continue to refine them once you have the original versions in place. However, it’s imperative that in today’s environment you keep your most productive employees in place and have mechanisms for separating more productive people from less effective ones. The only way to do that objectively (versus subjectively or even emotionally) is by having job descriptions and regular employee evaluations.

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 10

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.
July 2009