How to Lead In Tough Times

Do a detailed analysis with department managers to spot potential for real improvement. Too many business owners move revenues and expenses from this account to that to feel better. We need real numbers. Ordering a 10% cut across the board (a favorite tactic) may be high for one department and low for another.

Increase profit through small price increases in areas of high-volume sales (parts, service hours), or through efficient, targeted marketing and advertising. There are often untapped opportunities, even in a down market.

Increase efficiency and reduce staff needed in a given area of operation, through restructuring or process-improvement, including improvements in inventory management for both vehicle and parts sales. Do everything to reduce obsolescence and get special-order parts installed and paid for.

Suspend some activities that may aid customer satisfaction but may not be productive at this time. If things are explained properly to your customers, they're likely to remain loyal until you can restore the extra services.

Move “non-productive” people to productive positions when possible.

Reduce work time of hourly workers. Cut back hours of operation. A lot of dealerships stay open until 9 p.m. with no justification.

Reduce variable expense such as advertising, compensation percentages for commissioned workers (or raise the bar for bonuses, effectively the same result).

Postpone new expenditures even though they may be for assets. You may need to protect your cash position more than you need the new stuff. Yet, some technology purchases might actually increase efficiency and productivity.

Ask for more employee cost sharing in some benefits.

Reduce pay of groups of workers. For instance, ask managers from mid-level on up, to take a 10% cut in pay. Since these tend to be the highest-paid people, your savings could be equivalent to asking others to take a 15% or 20% cut. When any group of people is asked to take a pay reduction, they should be clearly told why; under what conditions full pay be restored; and that the owner is taking a cut, too. Consider a partially deferred compensation. For example, when the company turns three months of consecutive profits at or above a given number, pay will be returned to 100%. When the company's profits exceed a certain level for a 6- or 12-month period, deferred pay will be returned as a bonus.

Manage cash flow. A company can survive negative months if it manages its accounts payable and accounts receivable effectively. If it doesn't, even if it is showing a monthly profit, it may be in danger.

Secure a low-interest loan to bridge the downturn. Such a loan is available if you have assets with equity and corporate and personal credit.

Sell off some assets to generate the necessary bridge cash.

Wait. Sometimes the wisest and hardest thing to do is nothing.

Plan for the next downturn and stick to it. In 1992, as we came out of a recession, I hosted a workshop at the National Automobile Dealers Assn. convention. I asked attendees if they thought there would be another recession in eight to 12 years. Every hand went up. But when I asked how many had a plan to get through that next downturn, only about 10 hands went up.