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Slowdown may hurt some businesses, but others will profit.

Slowdown may hurt some businesses, but others will profit

Let's face it. We are entering an economic slowdown.

A clear signal that the economy is slowing comes from the composite leading indicator prepared by Statistics Canada. The indicator measures 10 major signs of economic activity each month. Earlier this year the indicator dropped .4 per cent - its largest drop since the major recession of 1981-1982.

Another indication is the lack of confidence among Canadian consumers. Housing sales are slow and stores are reporting less business as people become more cautious about their spending. They are saving more money in apprehension of an economy about to embark on a rocky road.

Nobody appreciates a slowdown, but it does serve the useful purpose of forcing companies to get rid of excesses that inevitably build up during prosperous times. Experts say the 1981-1982 slump taught Canadian firms to compete.

The main reason some enterprises handled the economic downswing better than others was that they planned and prepared for it.

Now is the time for you to take steps to protect your business from a stagnating economy. Twelve suggestions follow.



Few entrepreneurs are fortune tellers, but every business owner can plan how to respond to various economic scenarios.

How would you handle the loss of a major customer? How would you deal with a cash-flow problem? What would you do if one of your key suppliers went bankrupt?

You need contigency plans to deal with these and other possibilities.

Establish a strategic plan that points out potential obstacles and lists various ways to work around them.


It's wise to write down how much money you expect to come in and go out of your business over the next year.

A month-by-month analysis will pinpoint seasonal fluctuations in market demand and potential cash-flow problems, as well as the best time of year to buy the new piece of equipment your company needs.


The companies that survive rough spells are the ones that stay lean and flexible.

There may be several areas of your business that are not operating at maximum efficiency. Now is the time to get rid of any surplus, without compromising on the quality of your product or service.

One of the first items you may want to cut back is inventory. The money tied up in excess inventory could be earning daily interest. There's also the risk of stored supplies becoming outdated or damaged.

Ideally, you should order supplies only as you need them. Work at achieving this goal by carefully planning production and supply requirements and by establishing a solid relationship with suppliers who can deliver the goods when you need them.


A big chunk of your controllable expenses probably goes toward labor.

Streamlining your labor needs can save you money now and avoid the turmoil that a company faces if it's forced to lay off several employees at once.

If you require extra help, consider hiring people on a temporary or contract basis. That way you'll pay for workers only when you need them.


You may want to lease capital equipment instead of buying it.

Leasing conserves your borrowing power and frees more of your money for other expenses.

If you already own capital equipment, you may want to sell it to a company that will lease it back to you. Or you may want to sell equipment that's not being fully used.


The slower sales that usually accompany a period of stagnation may result in your needing less space to conduct your business. One way to generate additional income is to find a tenant for an unused area.


Your staff may have the best ideas for saving time and money during an economic slowdown.

Encourage your employees to make recommendations. Reward suggestions appropriately and recognize all contributions.


When the economy slows, many companies run into cash-flow problems and delay paying bills. The sooner you give your clients an invoice, the sooner they can pay it.

So, be diligent about keeping account receivables up to date. Issue invoices as soon as possible. Make credit terms clear to clients and follow up promptly on overdue accounts.


Try to keep your own cash flow as free as possible. Don't pay bills until 30 days, unless you are offered a discount for early payment.

You many also consider volume buying if the discounted price makes such purchases worthwhile. Ask regular suppliers to give you extended payment terms.

Consolidate your money and make daily bank deposits. You'll earn more interest, as well as the confidence of your banker. And you may be surprised by the amount of money sitting idle in the petty cash box.


The hardest time to borrow money always seems to be when you need it most. Why not negotiate a line of credit now, so that you have some extra funding if you need it?

Also consider where you would turn if a bank manager suddenly called in your loan. Other potential sources of funding may be your own savings, family loans, shareholders, government assistance or the Federal Business Development Bank (FBDB).


Mass marketing is becoming a thing of the past. Companies that establish a niche and serve it well are beating the competition.

More than ever, it's vital to know who your customers are, what they want in products and services and what they are willing and able to buy. You also want to know what your competition is doing.

If you have never done a market analysis for your business, you have no time to waste. If you have completed one, it may be time to update it in light of the changing economy.


Niche marketing doesn't mean you should put all your eggs in one basket. You actually may want to diversify now to ensure your business stays afloat even if one of your products or services is hit by a slowdown.

Another way to diversify is through exports. The Canada-U.S. Free Trade Agreement has created many new opportunities just south of the border and the trend towards globalized markets is opening up the world to entrepreneurs.

If the domestic market for your goods is slowing, find out where in the world your company's goods may be in great demand. If your company's products are very specialized, with a limited market, exporting is the way to achieve economies of scale.

Remember also that an economic decline always brings new opportunities. During the 1981-1982 recession, many companies reduced the number of products they offered and the markets they served. Smart entrepreneurs picked up the slack. They also took advantage of the increased demand for contract and freelance work.

This column was provided by the Federal Business Development Bank.

The Federal Business Development Bank (FBDB) is a Crown corporation that promotes the creation and development of businesses in Canada.

The FBDB pays particular attention to small- and medium-sized businesses.

The bank provides term loans and loan guarantees, venture capital and a broad range of management training, counselling and planning services.

FBDB clients employed 181,000 workers and created between 8,000 and 10,000 new jobs in the fiscal of 1989. Half of these new jobs were created in the non-metropolitan areas of the country.
COPYRIGHT 1990 Laurentian Business Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Small Business Report ... an NOB Advertising Feature
Publication:Northern Ontario Business
Date:Oct 1, 1990
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