Friday, November 30, 2007

Ways to manage the business cycle

Managing the business cycle is one of the biggest challenges that entrepreneurs can face. And there is no escaping it.

Given the globalized nature of business, events in far shores can make a big impact on your business, let alone the more predictable seasonal variations. The recent sub prime crisis in the United States is an example.

Not being prepared to withstand such vagaries could well mean the end of the business. Therefore, for a business owner, it is very important to learn this lesson early on, lest he or she is forced to do it the hard way.

Here are some ideas on how a business can be better prepared to handle the ups and downs of its business cycle.

One must learn to anticipate, although that is easier said than done. Many businesses have been caught unawares by an “unexpected” recession. Since businesses are highly interwoven, even developments in far flung corners have a way of creeping up on you.

It is very important to stay abreast of major economic trends, track regulatory changes and stay clued into the goings-on within your industry. If you can afford it, and your business justifies it, hire someone who can forecast.

Rethink capital expenditure – that does not necessarily mean cut back. In the face of a downturn, the conservative may defer capital investment; the proactive may go ahead in order to gain a first mover advantage when the economy recovers. Naturally, the decision depends on your actual circumstances.

You will also have to devote careful thought to how you will manage inventory closer to a recessionary period. Being saddled with piling inventory is no joy, but neither do you want to be caught with no product to sell when demand picks up. The inventory decision will also be influenced by the nature of the product (perishable/ seasonal) and production compulsions (minimum run). If you can store your product, it may be worth negotiating better terms with vendors in return for maintaining off-take in tough times.

Continue to advertise. This is the first casualty when business is slow. Sadly, most decision makers forget that advertising is an investment that can help maintain your business in the customers’ field of vision. During recessionary times, advertising rates go down too, so you can secure better visibility for your money.

Reassess your staffing needs – again, we don’t necessarily mean downsize. Obviously, employee headcount will vary with the business cycle. However, do remember, that during off season, the labor pool overflows. If you have been struggling to find the right people, you might get lucky during the slow season.

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