For many small retailers, the weeks between Black Friday and Christmas Eve are going to be the most critical they’ve faced so far. For some, it will be the difference between a profitable year, a failed year, or an end-of-the-business year.
The problem with being busy during this time of year is that business owners are focused on working “in” their business rather than looking at the overall environment and potential downstream strategies.
Business owners should be aware that there are quite a few indicators that things may not bode as well as hoped. Several big-box retailers have decided to square off against each other in the consumer electronics and children’s toys arenas. This means prices could be significantly lower, making consumers more price conscious.
Marshall Cohen, a Chief Market Analyst for the NPD Group, reports that this year $25 is the price point that consumers will find acceptable. This is a significant drop from the $50 and $100 price points of a couple of years ago.
Early season commercials all point to the use of low price as the tool to entice customers into the store. Lower prices mean lower profit margins, which places significantly more pressure on a retailer’s bottom line.
Although I would rather focus on the positive, this is the time of year I should focus on advising business owners who may not make it.
If you fall into this category, please read on.
One of the first steps you should take is to have an objective financial and market analysis of your company’s overall condition. This will place your business somewhere along the continuum that ranges from “healthy” to “marginal” to “unhealthy”. The analysis should evaluate the ending balance sheet, anticipated accounts payable, amount and aging of accounts receivable, expenses to ensue they are within acceptable levels, and anticipated trends for the next six to eight months.
Where your business is placed along the continuum should influence the actions you take in 2010. If your business finishes the year in a healthy status, that does not guarantee success in the following year. You will need to be proactive in protecting both the company’s brand and reputation and ensure that the business practices currently employed are sound and continue to contribute to a profitable bottom line.
Some key actions to assist in this endeavor include:
- Differentiate the business
- Maximize any trends in the industry that will increase sales
- Husband cash
- Examine inventory and supply levels, especially now that the peak selling season is over
- Retain existing customers and maintain lines of communications with them
If it appears that your business is marginal, it is time to proceed with great caution and possibly plan an exit strategy. Some steps to take include:
- Cleaning up the company’s financials
- Getting a handle on the company’s cost structure
- Maximizing the assets
- Reward loyal customers
- Take the time to consider how choosing an exit strategy will affect business planning
- Consider the costs, both financial and otherwise, of each strategy
An unhealthy business needs to be sold or shut down. If the decision is made to sell the business, it should be noted that only 30 percent of all businesses for sale actually get sold. If this is not possible, then the owner should prepare to close the business and develop a checklist to ensure that it is done in a proper manner.
Regardless of where on the continuum the business lies, the importance of having an outside impartial observer conduct or assist with the analysis cannot be overstated.
A good starting point would be the Hampton Roads Small Business Development Center, where we have the business analysts and experience to get you through rough waters.
Jim Carroll is the Vice President for Small Business for the Hampton Roads Chamber of Commerce and the Executive Director of the Hampton Roads Small Business Development Center, which serves as a catalyst and resource for entrepreneurs and business owners.