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Lean and flexible firms can compete.

The health of any business depends on its ability to maximize productivity and minimize costs. Companies, both large and small, must remain lean and flexible to compete effectively.

In addition, the need for all companies to stay in shape is increasing with the shift towards a global economy. The following are a few strategies and ideas that will help you improve the health of your company:

Cash reigns supreme in a sluggish economy because you are likely going to experience a shortage of it. As your cashflow tightens, the ability to collect your outstanding accounts receivable becomes critical. To ensure your commitment to this area, you might try:

* reviewing receivables on a daily or weekly basis, and immediately call overdue accounts

* visiting the customer to pick up the cheque

* offering discounts for early payment

* tightening your customer credit

* using a collection agency to collect overdue accounts

* obtaining personal guarantees, letters of credit or liens on equipment to secure accounts

The key to controlling expenses is knowing where your cash is going. Try signing all cheques yourself. As tedious as this may sound, you will be able to monitor and manage your cash better. At the same time, you will learn your business's purchasing patterns and can question any anomalies.

For cost efficiency, inventories should be reduced and maintained at a bare minimum during an economic slump. The price of holding inventory can be financially crippling, particularly when interest rates are high.

To pare down your stock try:

* reviewing inventory for slow-moving items and determining how to dispose of them

* ordering fewer supplies more often, rather than large shipments occasionally. On the plus side, this reduction will help you avoid overstocking. However, you may no longer be eligible for any previous volume discounts.

* forecasting sales and production requirements regularly. Structure your purchases based on these projections and buy only after all available inventory is utilized.

Information is power. Retrieving timely financial data is critical for monitoring operations, responding to changing conditions and competitively positioning yourself.

Receiving the monthly financial statements 20 days after month end is too late. Key financial information concerning sales and major expenses should be compiled at least weekly.

At all times remain upfront with your current banker. Keep the bank acquainted with your plan of attack, and provide updates as it evolves. Your banker is an essential member of your team - one who can help your business survive.

If your banker does not feel confident with your planning or believes he or she is not getting complete information on a timely basis, his or her assistance, patience or approval for increasing temporary lines of credit may be difficult to obtain.

Leasing is often viewed positively in lean times because it represents "off-balance-sheet financing." That is, you do not show the liability on your balance sheet.

In addition, no down payment is required, leasing conserves your borrowing power and frees up more of your money for other expenses.

Unfortunately, leasing is generally more expensive than buying, and the interest rate usually exceeds borrowing costs.

While necessary layoffs may be good for your business's bottom line, they can devastate staff morale.

To counter the blue mood of employees, actively enlist them in fighting business slowdowns. Keep them informed of the challenges that your business faces. Their help and suggestions could prove to be invaluable.

Interestingly enough, this may be the time to start an employee profit-sharing program. In some cases, such programs have spurred employees on to new levels of productivity, performance and cost-consciousness. They may also motivate staff to offer ideas on work-related improvements.

Finally, it is important to remember that while you cannot control the economy, you can control its effects on your business by being prepared. An objective analysis of your operations will allow you to lay a framework for survival.

George D. Medakovic is a manager of insolvency with Peat Marwick Thorne in Sudbury. This article was prepared with the assistance of the Peat Marwick Thorne office in Regina, Sask.
COPYRIGHT 1992 Laurentian Business Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Supplement: Small Business Survival Strategies
Author:Medakovic, George D.
Publication:Northern Ontario Business
Date:Apr 1, 1992
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