How to Manage Your Family Business in Tough Times
Partner’s Perspective
By David M. Wehrle, CFA, CIRA, CTP, Partner, BMF Advisors LLC
There hasn’t been much good financial news lately, and businesses large and small are feeling the sting of reduced spending on the part of cautious customers.
When it comes to surviving tough times, the rule for most businesses is simple: get back to basics. It’s the perfect time to engage in a business “check-up” and identify ways to rework your company into a lean, efficient organization that’s able to ride out the difficult times and emerge stronger during a recovery. Here are some places to start:
Examine expenses The first step is to look at every expense, no matter how small. Shop around to improve your insurance and utility rates, buy less expensive supplies, sell surplus vehicles, cancel superfluous subscriptions and renegotiate contracts. Consider starting with a “zero-based” budget, where every expense must be justified as necessary to your business objectives.
Press the payrollNo one likes to take a pay cut, but deferring compensation for owners might be necessary to keep the business on an even keel. You may be required to adjust your lifestyle to help the company. Also look at family employee salaries: Everyone should be paid at market value for the work they do — no more, no less.
If the situation is drastic and you are thinking about trimming your workforce, you might want to consider some alternatives first. For example, implementing a four-day workweek can keep important staffers employed and on the payroll but at a reduced salary. Outsourcing certain functions of your business may also reduce expenses.
Communicate with your lender With so many sectors of the economy struggling, lenders are not surprised that businesses are facing difficult times. The worst thing to do is to adopt a “bunker mentality” and go radio silent. There is nothing that upsets a lender more than being surprised with bad news, particularly if the lender thinks the news has been withheld. Lenders’ needs are simple: they want their money back with interest. They want you to succeed. Communicate the issues you are facing and clearly lay out your plans.
Talk to the family Educate non-active owners about financial issues affecting the company. Once they see the big picture, they are less likely to be resentful about receiving smaller dividend checks.
Do some strategic planning Now may be the time to re-engineer your business with new products, additional services and market expansion. For example, a car dealership might expand service hours, start selling tires or push leasing over buying when consumers are hesitant to spend. A landscape design company might branch out into yard maintenance, pest control or arborist services. A professional services firm might expand its efforts to attract business from a larger geographical area.
If there’s cash in the bank, acquiring a complementary company might be a good idea now, especially if it eliminates some competition.
Magnify marketing Don’t stop marketing just because the economy is down. Instead, create inexpensive marketing campaigns to attract new business. Spend some time revamping your Web site. Tout your prices, your variety of products and services or your exceptional customer service — whatever sets you apart from the competition. Masterful marketing can make or break a business in difficult times.
No one can predict the future of the nation’s economy. But it’s wise to prepare your business now for whatever lies ahead.
For more information, contact David M. Wehrle, partner, BMF Advisors LLC at 330.255.2484 or by email.
Sidebar
Family on the Payroll
First, there’s a patriarch or matriarch. Then a few children come along, followed by a slew of grandchildren. Exactly how many family members is your business expected to support?
Running and growing a strong family business requires making good business decisions — which are not necessarily compatible with “family-first” decisions. If a family member wants to work in the business, there must be a real job available at a reasonable, market-driven salary.
Be cautious with your family hiring process, and make sure that every family member earns his or her keep — every day.