Many financial experts and economists predicting the next economic recession is just around the corner. An equal number, if not more, say that there will not be an economic downturn in the months ahead. Regardless of who is right and who is wrong, “recession proofing” the snow and ice management business can ensure survival if tough times occur -– and a better bottom-line if they don’t.
In fact, there are steps that every business owner and manager can take that will ensure their business is prepared, survives and profits. Preparing for a recession means paying attention to the operation’s numbers now -– like saving on costs or getting out of debt -– to ensure that the operation is in good shape later on.
During a recession, every business is constantly under financial attack from all sides: dwindling sales, increasing expenses and customer and employee retention problems, making advance preparation vital. This does not mean hunkering down too soon but, rather, employing cheap and easy strategies to prepare for a recession and creating a contingency plan to help the business act faster and smarter.
While big changes, such as postponing capital spending, should not be implemented until it is clear a downturn is actually occurring, other changes make sense even if a recession never comes. That can mean shoring up the snow and ice management operation and its cash reserves today.
In the middle of an economic downturn, the operation may find itself forced to quickly cut costs leading to hasty decisions. After all, a recession is not the right time for a snow removal contractor to discover what is and isn’t profitable and/or cost effective.
Operations that are weak going into a recession spend their time putting out fires, playing defense and simply trying to keep their heads above water. Successful businesses do more than keep the wheels on the bus, they have planned their long-run strategies.
Every snow removal contractor should have a plan for periods of tight cash flow, coming projects and financing needs. With that in mind, it is no surprise that the best-performing businesses in past downturns had strong balance sheets and were even taking on additional debt to purchase more assets, expand or even acquire competitors -– all relatively inexpensively.
Among the strategies everyone can employ that are equally valuable with or without an upcoming recession are:
GROWING YOUR CUSTOMER BASE
The importance of increasing the number of customers the snow removal or ice management operation has can’t be overemphasized. After all, the unexpected loss of a big customer or contract can impact even the most financially stable business.
MAKE THE MOST OF CURRENT CUSTOMERS AND CLIENTS
It is unfortunate that customers are usually the first to go during tough economic times. An economic downturn or recession means that now is the time to take care of loyal customers, since they could also bring new customers to the business. Telling customers how much their business is appreciated or rewarding them through discounts, loyalty cards and gift certificates can reap big dividends.
WIN A COMPETITOR’S CUSTOMERS
Any snow removal business hoping to prosper in tough times must continue to expand their customer base -– and that often means drawing customers away from the competition. This can be accomplished by offering more or something different than the competition does. Providing better customer service is often viewed as one of the easiest ways to outdistance the competition.
BETTER AND MORE AGGRESSIVE MARKETING
In tough economic times, many businesses make the mistake of cutting their marketing budget or even eliminating it entirely. Lean times are, however, exactly the time when the business needs marketing. Customers are restless and make changes in their buying decisions. Clearly this is a time to help them find your products or services, meaning the snow removal and ice management operation should become aggressive in marketing.
Prospective customers, who could also be feeling the same economic pinch, will likely be on the lookout for special offers and freebees that can provide them some financial relief. Developing special offers and discounts, while limiting them to a specific time frame (i.e., for a limited time only), will create a sense of urgency and produce some quick cash.
Many snow and ice removal contractors and businesses need to go into debt in order to finance their operations, whether by borrowing money or charging expenses to a credit card. Now might be the time for a snow removal and ice management business owing money to make an aggressive plan to pay it off as soon as possible. If a recession or any economic downturn does materialize and if the operation is maxed out on debt, there will probably be a limited access to badly-needed cash.
ON THE OTHER HAND, SOME DEBT MAY BE GOOD
Many experts advise freeing the operation from debt before a recession hits and, then, to avoid taking on any more unless absolutely necessary. However, if the snow removal and ice management operation is thriving, it is the best time to get access to financing.
Good times or bad, something like a “rainy day fund” is almost a necessity. Whether it is an emergency savings fund or a line of credit, planning ahead means having a ready source of cash if or when it might be needed. Obviously, since the contractor or business owner is dealing with a financial institution, a line of credit is far easier to establish before the business begins struggling. A line of credit is extended by a bank or other financial institution to a business that enables the operation to draw on the funds when funds are needed.
KEEP PERSONAL CREDIT IN GOOD SHAPE
It is no secret that hard times make it more difficult to borrow. After all, small business loans are among the first to disappear. However, with good personal credit, a professional snow removal and ice management contractor will stand a much better chance of being able to borrow the money needed to keep the business afloat –- if necessary.
Recession-proofing a small business often boils down to keeping tabs on the owner, partner or shareholder’s personal credit rating as well as that of the snow removal business -– and doing whatever is necessary to keep all those credit ratings in good shape.
DIVERSIFY OR NOT
Far too often snow removal contractors simplify the concept of “diversification” to “different.” Merely adding other services to the operation is not diversification. At best, it’s a waste of time and money. Worse, it can damage the operation’s core business by taking time and money away from what the business does best. In other words, drop the extras and focus on what the snow removal and ice management business does best and that is most profitable in order to recession-proof the operation.
INCENTIVIZE THE WORKERS
During any economic downturn, the snow removal operation’s employees, if any, will have financial problems of their own. That means their first priority will usually be to take care of their families, either with a raise from their current employer or from a job change to one of the business’s competitors.
Losing well-trained, quality workers is something no snow removal business, large or small, can afford to let happen. Employees, if any, should always get fair compensation for doing their jobs. When they go above and beyond, however, they should be rewarded through a formal, tied-to-profit, pay-for-performance plan. This means developing a pay-for-performance plan tied to profit for each key individual – and involving the worker in the planning process.
There is no better money-saver than modern technology. This means computerizing the operation to the fullest and using accounting and inventory software and spending less time balancing the books. An online business should install hit counters on their website to know how many visitors they’re getting and where they are coming from. Motion sensors, which shut off lights where nobody is present, can also be installed to lower utility bills.
A recession may or may not be on the horizon. Despite this uncertainty, preparing now can not only help every snow removal and ice management business survive but gain market share and grow. That’s why it’s important to review the various scenarios now, including how the operation would handle a sharp drop in sales.
Unfortunately, there is nothing that will make any business 100 percent recession-proof. However, implementing some of the strategies already outlined can help ensure the operation survives tough times and, perhaps, even enable it to profit from them.
Mark E. Battersby is Snow Magazine's financial writer. He is based out of Ardmore, Pa.