(Client: Credit Management Association)

Tough times can provide a great opportunity to improve your company’s bottom line. Here, four financial strategies that may help to position your small business for long-term success.

As your business emerges from the long, punishing downturn, you probably feel you could get through anything. And you just might be right. More than half of Fortune 500 companies – including such icons as Kraft, ExxonMobil, Disney and Microsoft—launched during a recession or a bear market. Whether businesses are new or well-established, those that find ways to cope—or even thrive—when times are tough may be better positioned to surge ahead of the competition once the economy takes off. The strategies below not only can help you get through the near term, but they also may give your company an enduring edge.

Look first at payroll and benefits
In any downturn, it is critical to keep business costs in check. But even the healthiest businesses can benefit from some cost-cutting measures.

The biggest expense is frequently payroll and benefits. Look at areas where you can cut excess spending or where you can consolidate or simplify processes. For example, consider the cost of retirement plans. If profit sharing or a 401(k) is part of your benefits package, review your plan provider’s fee schedule. “Ask yourself what services and features you’re paying for and whether you’re using all of them,” suggests Michele Wickles, Managing Director and Product Management Executive, Bank of America Merrill Lynch. “Working with all your resources to optimize the services that you are paying for can be to your great advantage.”

Decreasing the company contribution to employee benefits is another potential source of immediate savings. You might consider asking workers to kick in more—paying 25% of health insurance premiums, for example, instead of just 10%—or you could reduce the amount you contribute in profit-sharing dollars or matching funds to a 401(k). You should explain these changes as necessary—and possibly temporary—moves to help shore up the company’s financial health. Tread carefully, though. “If you’re taking a benefit away, it’s important to emphasize that it’s so the business can stay the course,” says Wickles. “That’s to everyone’s advantage.” It is better to invest the time upfront to build employee support for changes than to risk leaving people in the dark and damaging both productivity and morale.

Payroll is also a category where you can find major savings. Evaluate whether the cost of your employee wages aligns with your business profits. Staff reductions are usually the most obvious way to lower the expense of salaries. But if your workforce is already lean, doing this can place stress on both your employees and your business’s ability to meet customer needs. As an alternative, you may want to consider transferring a larger portion of your sales staff’s pay to commission. This alteration to your business model allows you to incur additional expense only if employees sell more, and could create a lasting cost advantage. While introducing this change to employees requires careful handling, your staff may find it preferable to layoffs and a strong motivator to improve performance and bring in more revenue.

Streamline your expenses
Not every financial move has to revolve around your staff costs, however. Small cuts can often make a big collective difference. Look at every item, line by line, to see where you can trim. If your company buys raw materials, consider switching to less expensive suppliers or inviting existing suppliers to rebid for your business. If your firm relies on service providers, explore creative pricing strategies. For example, look for situations where you can get several services bundled together at a combined lower price or where you may be able to get a discount for a long-term contract. Phone and Internet providers usually offer both options. These basic services may seem like obvious examples of areas to save, but for many businesses they are large sources of empty spending.

“The real opportunities for cutting costs in a small business tend to be with recurring expenses: utility bills, Internet service, subscriptions, insurance,” says Bruce Pounder, chair of the Small Business Financial and Regulatory Affairs committee of the Institute of Management Accountants. “Maybe your phone bill is bigger than it has to be because you signed up for 100 voicemail boxes and need only 50.” His advice: “Don’t write a check without asking, Can I get this cheaper elsewhere? And do I really need it at all?” Paring down these bills and putting firm cost controls in place now will bolster your profit margin once sales start to rise again.

Master the art of cash flow
It’s easy to become lax about collections when the money is rolling in, but tough times offer a great chance to tighten your billing and payment practices.
First, see if you can negotiate better terms with your vendors, such as a longer payment schedule or lower interest rates. Keep in mind, however, that your leverage may depend on your company’s size and importance to the vendor. Vital customers tend to have more leeway in negotiating terms.
Apply similar scrutiny to the money that customers owe you. If sales are stagnant and receivables are growing, that probably means that people are taking longer to pay. Mike Mitchell, president of the Credit Management Association, suggests devoting more staff time to calling delinquent accounts. And don’t wait until payment is 15 or 20 days past due. On day one, make the call. Finally, consider getting outside help so that you can collect more effectively and continue to focus on your core business. A collection agency may seem like a draconian step, but you can instruct the agency to go easy on clients at first and to couch efforts as “reminders,” not threats. The payoff of freeing up funds is likely to be worth it. Only companies with sufficient cash flow in good times and bad can pursue possibilities for innovation and growth.

As you evaluate strategies for addressing challenges caused by the downturn, consider asking your Financial Advisor these questions:

• How might I fine tune the costs in my business retirement plan?
• How can we estimate the impact of a shift to a commission-based payroll?
• What other areas of my business should I examine for potential cost-cutting measures?
• What types of lenders would be most appropriate for my business?