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In Tough Times, The Tough Get Going

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Photo: ©iStockphoto.com/RaminKhojasteh

Howard Scott |

PEMBROKE, Mass. — At almost every Laundromat I stop at these days, I hear roughly the same thing: “These are tough times. The country has 12% unemployment. Business is lousy. It’s the economy.”

Well, it’s good that there’s so much agreement. Except for one small point: there are opportunities in tough times that good operators take advantage of to maximize their profits. Even with declining sales, a sharp businessman can creatively reduce expenses, tighten his nut, eliminate marginal sales, cut unprofitable sidelines, emphasize profitable aspects, and come out ahead.

The universal law of business is that inflow must be greater than outflow. So, when sales are down, a good manager cleverly manipulates the variables.

Here are just a few ideas for the expense side of the equation:

Request a rent cut

These are tough times, especially for landlords. Businesses are being shuttered every week. Nothing looks worse than an empty storefront. You are a good tenant, and you’ve been in the same spot for several years. Furthermore, you pay the rent on the first or second day every month. The landlord doesn’t have to worry about you. You’ve told him that when your lease expires in three years, you want to renew.

So, ask for a temporary reduction in rent, just until the lease is up. You could possibly negotiate a $200 lowering. Point out that there’s been construction in the street, and the neighborhood is changing, and you haven’t quite figured out how to win a sizable proportion of the newcomers. Note that new competition moved in several blocks away, but you’re confident they’ll be gone in two years. In short, you need a break now. As a good, reliable tenant, you deserve a break.

One store owner wrangled a $6,000 annual rent deduction by agreeing to do some landlord functions, such as plowing the parking lot when it snowed, cleaning the front, patching the roof and doing plumbing repairs. It helps that the owner’s brother does snowplowing as a sideline and that the owner is handy enough to do most of the chores himself.

Cut employee hours

Yes, this is a drastic move, but sometimes it is necessary. You have a target profit to make, and if you’re below target, then cut hours. Don’t wait until you’re at break-even, because you should never be at break-even. Reduce full-timers (40 hours) to 35 hours while maintaining full benefits, and cut part-time hours from 20 to 17. Giving the employees a few extra hours for themselves is not a terrible thing, particularly if you explain why it is necessary—so that your company can continue to operate.

To make the most of those reduced hours, eliminate one supplier pickup a week, close one hour earlier at night, have no store coverage during the slowest times of the day, and process commercial work using in-store staff rather than hiring someone to help. Whatever needs to be done needs to be done, for profit is king.

That doesn’t mean that you don’t take care of customers. Customers are the driving motor of profits. But, within that framework of obligation, you must always make money (profit), and you can be clever in achieving it, without alienating your customer base.

Demand better prices from vendors

Demand price reductions. Take advantage of deals. If you own the building, fight for a tax rebate, based on the fact that your property value has gone down $150,000. Petition the utilities to secure better pricing.

You say fighting the utilities is like stopping Niagara Falls, but how do you know if you don’t try? Go and speak to someone and plead your case. Make the case that if the utility can’t deliver favorable terms, it’s entirely possible that your business will close, and then the utility will be left with one fewer customer. Perhaps you could obtain more favorable rates by pre-paying.

Possibly the utility officer can point out some saving factor. Maybe there is an experimental delivery method that you would be willing to try out in exchange for lower utility costs.

As for vendors, the iron law of buying is that there is no bottom. Just when you think the lowest prices have been reached, the discount center comes along. Then Walmart comes into the marketplace, killing all existing prices. Then Costco, Sam’s Club, BJ’s, the bulk retailer, appears. Ask the vendor for a menu of prices that is 5% lower. Failing that, insist that at least one product have “super” pricing. Negotiate a 2% discount for prompt payment, and take advantage. As an incentive, talk up your loyal patronage, and how his dealing you a better hand will strengthen the relationship. Ten years from now, the vendor will have recovered multifold.

Draw less money yourself

This shows that you are willing to put company profit above personal welfare. It will go a long way toward convincing employees to take lower paychecks. But it also forces you to be disciplined. I hope your lifestyle allows you to cut back, namely that you aren’t living on every cent that comes in the door and then some.

Reduce your newspaper subscription from seven days to four days (just Thursday to Sunday). Cut back your cable TV subscription. Cut the grass yourself rather than hire a service.

Make your child work in the summer and contribute $5,000 each year to help pay for college, plus get a work-study job during the school year to fund spending.

Encourage your spouse to get a part-time job (even at McDonald’s—something is better than nothing). Have your elderly mother move into the spare bedroom and take a piece of her Social Security.

Sell the Lexus and buy a second-hand Volkswagen (you don’t need to impress anyone). Cut out eating in expensive restaurants. Alter your health insurance to include a $2,500 deductible and stay healthy. Drop that gym membership and exercise at home.

Do most of these things, and you’ve reduced your nut by $25,000 a year. A pay reduction is a snap. Such modifications show your workers that you are willing to share in the pain. This goes a long way when asking them to accept reduced hours.

Tough times require toughness. Start today to dig in and bulldog your way to profits.

About the author

Howard Scott

H&R Block

Industry Writer, Drycleaning Consultant, and H&R Block Tax Preparer

Howard Scott is a longtime industry writer and drycleaning consultant, and an H&R Block tax preparer specializing in small businesses. He welcomes questions and comments, and can be reached by writing Howard Scott, Dancing Hill, Pembroke, MA 02359.

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