Preserve Your Profit Margins

In May, the United States Department of Housing and Urban Development (HUD) and the U.S. Census Bureau reported that new home starts were off by more than 30 percent from April 2007, but this news does not mean you should trade healthy profit margins for survival. In fact, periods of slow economic growth can be the best time to revisit your business practices to ensure that you are doing your best to preserve profit margins.

Bidding your Best
Although a sluggish economy may tempt you to lower prices, it is important that you fully understand what your price includes. Revisit your bidding practices to ensure that you are covering all costs before you arrive at your mark-up. Many owners neglect to factor in the following items in their overhead when they draft their time and materials contract:

• Liability insurance. If your business has grown to the level where you're  developing a board of directors, you may want to consider adding directors and officers insurance, which your current carrier can frequently add at a limited cost.
• Administrative salaries, including your own. Sole proprietors that don’t  bill their business for their salary should assume the prevailing wage for the time and expertise they invest in the business.
• Cost of telecommunications, office equipment and all other costs of providing your services.

Lower Your Overhead
If business is slow, take the time to literally take stock of your inventory and alter your buying practices, especially if you anticipate taking on smaller jobs within the next six months to a year.  If you’ve reduced your inventory, it’s possible that your business will require less insurance, allowing you to reduce your premium.Talk to your insurance carrier to make sure you have exactly what you need: no more, no less.

Watch the payroll
“The primary concern I am hearing from clients is the ability to retain staff,” says Florida Small Business Development Center consultant Daniel James Scott.  “Once simple cost cutting is complete, we are reassessing core business strategy.  If freelancers are not working with any consistency, layoffs are imminent.” Forecast your needs for the next six months and consider leaving positions vacant if some of your employees accept work elsewhere. While retaining idle staff is never a good idea, laying off employees almost always includes hidden costs, such as unemployment benefits, which are chargeable to your business.

Almost all American businesses are having a difficult time providing health care, or at least a portion of health care, for their employees. While cutting back or passing the cost of health care increases onto your employees could force them to seek work elsewhere, it is important to inform employees of the overall costs associated with their benefits. Establishing the total value of your compensation package makes your employees feel more informed and less likely to take a job offer that only appears to be superior.

Go Green and Diversify
Do your best to take advantage of the slow down in real estate by catering to owners who have made the decision to stay in their current property until the economy improves. You can undertake capital projects for owners, such as work outdoor porches, perimeter fencing or energy efficiency investments.

“Larger firms are looking for new directions to take their firms–including green and environmentally-friendly projects,” says Scott. “These are attractive because the promise of long-term cost savings is attractive to the typically liquid baby boomer population during a time of recession.”

You can learn more about green building at the National Association of Home Builders Green Building site.

Financing Your Customers
When business is fluid, an owners’ focus can stray from timely collections. Now is the time to tighten up. Don’t let your receivables get beyond 60 days overdue. At the same time, be sure you are sensitive to your most valued customers, who may also be suffering from a weak economy. Take note of the amounts you are owed as well. Calling a customer who is one week late on a $100 payment can send the wrong message, mainly that your business is losing is viability.

On the other hand, informing your customers well in advance that you will impose a finance charge on overdue payments will give them fair warning while at the same time defrays some of the costs from carrying their balance.