If you run your own business, you are probably thinking a lot about the recession and what that means for your business. And this idea is good. Intelligent analysis, you should be fixed ideas about how to protect them and give your company’s growth next year.
A warning however: not in a race to do something to do the wrong thing. In particular, would like you to three business really terrible planning ideas to avoid a bad recession
Business Planning a bad idea: lower prices
In a weakening economy, reduce the purchase price seems an interesting idea. After all, customers seem to buy more slowly. Competitors can be a vulture circling over your clients and customers. And yes you need only a newspaper to see that the price “of the competition cuts as the tool of choice for large companies such as automakers ….
The fall in prices is usually not make any economic sense, but. And simple for a reason: Accountants do not work. But let me explain with an example …
Suppose you sell an item with a profit of fifty percent. Take, for example, sell some items of $ 100 will cost $ 50. And maybe you think you should reduce the prices by 10% in order to “remain competitive”, or win back customers from a competitor.
All that sounds pretty smart, I give you. But the problem with a price cut is this: You almost never in additional sales of the profit margin you lose by lowering prices to be done.
For example, the breakeven on a 10% reduction in price as in the example described, you really need a shock of 25% vol. In other words, if you drop the price of $ 100 to $ 90 (and to give so that your gross margin per unit $ 50 to $ 40) make the sales volume by 25% would need to return to the starting point. In times of recession. When competitors were probably the same “Let’s lower the price” idea. And if the economy shrinks.
Tip: You can test the results of this calculation by a calculation back of the envelope or use a table.
Bad Business Planning Idea # 2: Fixing a business model that is not broke
In a depressed economy – especially when it operates in a cyclical industry – you might be tempted to completely renew the business model are: You can also easily change strategy, joking with the structure, trade or tactics, for example.
This kind of logic. The Company can not, after all, produced sufficient profits or gains.
But the problem with “fixing your business model” is that your model can be broken in practice. In a sense, is what is really broken the economy. Once the economy picks up, your business model work again.
And then of course there is the huge problem with reengineering a business model: You do not really want to recognize you be able to test and implement a new business model recession prior to the relevant trade will end badly.
Bad idea to keep the business planning 3: unprofitable customers, products, etc.
Cold as it may seem, even a recession will give you the opportunity that you probably do not miss … The occasion? Dumping unprofitable customers, products, people and so on.
If the economy is healthy, presents products from dumping or people you do not make money, a mystery. Yes, we must cut the cord. But customers and employees Shooting sends messages to scare people. And if you think starting this way, you can easily deterred.
In recessions, however, expect that the people this type of restructuring. And even if someone (unfortunately) a special interest in taking certain steps you take, you know, another, larger company will be something interesting to do tomorrow or next week.
Bottom Line: You do not want to miss this opportunity. And remember, you do not have that kind of change just profits for the owners of cats or too much fat executives. Instead, take these changes in order to increase the likelihood that you are always in use, the more of your workforce in the coming months and perhaps years of recession, which we have before us.
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