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Surviving and Profiting from the Economy, Intentionally
By Mark E Battersby
Every sign business experiences slow periods. Whether those slow periods are the result of economic downturns, such as the recession many experts predict the U.S. economy is headed for, the economy in general, seasonal slumps or other factors beyond the control of the sign business’s owner or manager, the keys to survival involve understanding why things are slow -- and how to correct them.
When slow periods are predicted or when the signs operation is already experiencing the effects of the economy, costs must be reduced, sales increased and the business managed better. Thus, those who “know” and understand their sign business cannot only survive a troubled economy, they may actually profit. After all, surviving slow periods often means additional bottom-line profits from increased sales and lowered costs. The end-result if often a better run more profitable enterprise.
Just as many experts differ whether we are in or about to enter into a recession, some sign business owners and operators see a promising year ahead while others are struggling to survive. Fortunately, a number of useful strategies can benefit all sign businesses - impacted by the U.S. economy, the local economy, competition - or not affected at all.
Obviously, not every sign business can diversify into another field. Often diversifying into a niche market within your own industry will prove profitable. Creating a market where you have little or no competition, below the radar of competitors can be quite rewarding.
Continuing to manufacture an odd size, color, etc., discontinued by other sign shops is not an automatic guarantee of success but investment may be minimal and risk low, both key factors to surviving the economy.
Knowledge is profit
To illustrate, the profit and loss (P&L) statement (or income statement) is one of the most important indicators of the sign business's worth and health. Properly prepared, the P&L statement shows the profit and loss for each product, product line, service or profit center as well as the profit and loss of the entire business.
Comparison is the key to using a P&L statement. Obviously, a sign shop operator should look not only at a single month's sales or only at their operation's profit picture. The figures on your financial statements (all of them, not merely the P&L) are meaningful only when the picture is put in the right frame. A P&L statement shows each item for the current period, for the same period last year and for the current year-to-date.
Anyone can predict or forecast the trends likely to be encountered by the average sign business. By carefully analyzing the historic trends of your business, as shown in your records for the past five years, you can forecast for the year ahead. Your sales records, your experience in the sign industry field and your general knowledge of the economy -- national and local -- should help you forecast a sales figure for the next year.
Using that sales forecast figure, a budget can be developed showing costs as a percentage of that figure. That budget, properly prepared, will determine the health of your sign business, especially during those inevitable slow periods.
Cost cutting for survival
Renegotiating the interest paid on borrowed money is one strategy for surviving the economy. In some cases, borrowing money from the business or from the operation’s owners might slash borrowing costs. Remember, though, there is a cost associated with money whether it is the business’s, the owner’s or a lender’s funds.
The “cost” of money is the amount of interest paid on borrowed money or the “lost opportunity” cost of the funds. That lost opportunity cost can best be described as the amount the business or the owners might have earned from investing or otherwise employing those funds. A sign business owner whose investments yield a ten percent return each year would be foolish to use those funds to refinance the mortgage on the business building, a mortgage on which the business is paying an interest rate of only three percent.
One of the largest expenses in any business is labor. Because of the close contact with employees, some small sign shop owners/managers ignore direct and indirect labor costs. They tend to think of these costs in terms of individuals rather than how they relate to profits in terms of dollars and cents.
Thanks to sales forecasts, the sign shop operator knows when to expect seasonal slowdowns. Why not encourage employees to take vacations during that period when their services may not be needed? This policy will not actually cut costs, but it should help maximize the effectiveness of the workforce and ensure that those workers are available when sales eventually increase.
Increasing sales for survival
Why not go one step further, however, and design an advertising campaign to promote products or services with the best profit margins? Or even better, advertise services or products that are less in demand during slow periods?
You are you refining the advertisement but also utilizing the type of media that will best reach the audience you feel will be most receptive to your products or services during those slow periods.
In addition to advertising, or with the help of advertising, there are three ways in which every sign shop can increase sales: 1) Find new customers; 2) Increase the average sales transaction; or 3) Give your customers more opportunities to buy more frequently -- that means a "sale."
As many sign shop customers have discovered, a "sale" is the fastest and easiest way any business can boost sales, draw customers in and increase income in slow periods. Remember, however, to markdown the price of a product or service without knowing its cost (both direct and overhead or indirect costs) will only make tough times less profitable.
With an established line of credit, the sign operation's bank agrees to lend amount of money up to a certain limit on an "as needed" basis. Interest is paid only on those funds that are actually borrowed, although most banks charge a minimal monthly fee for earmarking funds for your sign operation's possible future use.
The U.S. Small Business Administration (SBA) offers a similar program to help sign shops and businesses survive slow periods. Their program offers short-term loans to help small businesses get past cash crunches that are usually attributable to seasonal changes in business volume. The loans are guaranteed by the SBA.
The SBA can guarantee as much as 65 percent of the loan up to $750,000. For loans up to $155,000, the SBA can guarantee up to 90 percent of the principal. The term of the SBA's seasonal line of credit cannot be more than 12 months and only one Seasonal Line Of Credit loan can be outstanding at any time. Each loan must be followed by a so-called out-of-debt period of at least 30 days.
By evaluating and reducing expenses and increasing sales, surviving - and profiting - in our current economic climate is both possible and feasible. Financing can be lined up, employees encouraged to take vacations, to retire, or inventory and its related carrying costs slashed and an advertising campaign designed to draw more customers.
Regardless of whether an inevitable slow period results from the economy, from competition or from other sources outside the control of the business owner or manager, it is never too late to employ slow period survival strategies in your sign business.
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