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9 Tips to Beat the Recession

GOOD IDEAS are never late in arriving, especially if they bring with them something that can add value to your BUSINESS & BOTTOM LINE. 

Iíve decided to shift away from the business succession & estate planning ideas Iíve covered in the past and move instead towards giving optical retailers some ideas to survive (if not thrive) during a recession. So I put together a quick list of some of my strongest ideas and offer them to you in the hope that you will find an idea or two that will add value to your business. 

1. Focus on cash flow rather than paper profits.

Cash flow seems like a simple concept, but itís not. Cash is king in business, and no optical retailer can survive for very long without generating positive cash flow. Cash flow is defined as a companyís cash inflows minus its cash outflows over a given period of time. Most closely held optical business owners think of cash as revenue less expenses. This is simply not the case. To comply with generally accepted accounting principals (GAAP), financial reports and filings generate a great deal of ďaccounting static.Ē Itís quite difficult to tell from an income statement or balance sheet how a companyís cash is actually utilized and the condition of the companyís current and future cash flows. A profitable company doesnít necessarily have positive cash flow, and a company with positive cash flow may not necessarily be profitable. 

Cash flow is one of the most commonly used terms in business, but itís generally not very well understood Ė even by financial professionals Ė and it can get pretty confusing. In hard times, cash flow is paramount. Sales may flatten or even fall while fixed costs remain static. If sales fall below the point where the company is able to produce a paper profit, it still may not be time to panic IF the company has strong and stable cash flow. Can a company stay in business while showing operating losses if they have strong cash flow? Absolutely! Optical retailers need to get ahead of the curve in hard times and intimately understand and predict their cash flows.

2. Know your break even point. 

A retailerís break even point is the point at which a product or service stops costing you money to produce and sell and starts to generate a profit for you. It tells you at what sales volume the variable and fixed costs of producing your product or providing your service is recovered. In hard times, you have to know what your break even point is because that is, in a sense, your floor level of sales. If sales fall below the break even point for an extended period of time, youíre in trouble. Every time you change the parameters in break even analysis, the break even sales volume changes. The parameters, then, are the factors which must be controlled by family and closely held business owners and managers. 

3. Know your burn rate.

Burn rates tend to be associated with newer or high tech companies. But in hard times, your burn rate is an important feature for mature optical retailers who are struggling or are burdened with large amounts of debt. If a retailer burns cash too fast, they run the risk of going out of business. Burn rate analysis can tell owners and stakeholders whether a company is self-sustaining going forward or if the signals indicate that there is a need for shareholder or outside financing. Burn rate is a subset of break even analysis, and it asks the question, ďAt minimal levels of sales activity, at what rate will I go through my available working capital?Ē Itís a more ďskinnied downĒ number than break even; burn rate assumes that sales have dropped through the floor and that youíre facing a worst case scenario.

4. Forecast a rolling 13 week cash flow projection.

Cash flow budget worksheets can be adapted to any business of any size. Assuming one has a pretty good handle on future inflows and outflows of cash (and this might take a bit of homework), itís reasonably easy to forecast future cash flows and anticipate potential problems. Unfortunately, this tool is incredibly underutilized in most entrepreneurial companies. Protecting yourself in tough times means that closely held optical retailers must become intimately familiar with the concept of cash flow and must be able to predict it with stunning accuracy. A cash flow statement is sort of a compressed corporate checkbook analysis. The resulting cash flow projection is a management tool which helps a company anticipate and avoid liquidity problems.

5. Borrow money from the corporationís cash value life insurance policies. 

Suppose a retailer undertakes the 13 week rolling cash flow projection and finds that they have a need for liquidity in four monthís time. Given the turmoil in the financial services industry today, it may not be feasible to go to the hometown bank in order to secure a loan. Many closely held companies have cash value life insurance policies which have accumulated significant value over time. Itís possible to borrow some or a great deal of the cash from those policies Ė and best of all you donít have to qualify. For companies who worry that in hard times they may not be able to qualify for a commercial loan, cash value life insurance may be a real opportunity, and it may solve pressing cash flow issues. But before you call the insurance company; be sure to speak to your accountant and/or financial advisor.

6. Negotiate terms with vendors and suppliers.

In a recession, it may be necessary to negotiate terms with your vendors and suppliers. If you are in a solid, stable cash flow position, you may actually have extra bargaining power with your vendors for the simple reason that they too may be experiencing a cash crunch, and your ability to pay quickly is most valuable to them. Be careful with generous dating programs from vendors as those Net 90 day terms have a terrible habit of coming due quite quick, especially if you havenít set aside funds. 

7. Avoid internal communication failure. 

Most closely held optical retailers are people of relatively few words, the strong, silent, Gary Cooper types. There is nothing wrong with that style of communication and leadership. However, during these tumultuous times, itís important for the optical store owner to make sure they are communicating to the rest of the team what the plans are. How is the company going to weather the current economic crisis? What changes need to get made? What marketing ideas are in the pipeline? Are there any reasons for optimism? Failure to communicate regularly with the team during difficult times increases fear and anxiety. On the other hand, communicating regularly and honestly helps calm their fears and reassures the team that the leaders understand the current economic mess, have plans to deal with it, and that there is a realistic hope that the company will emerge from this period stronger than ever.

8. Donít lose focus on your core business.

Several years ago a young man who was successfully operating his fatherís business came to me in frustration mentioning that Dad - quite the entrepreneur - had handed the reins of the original business over to the son and started a new enterprise. The son was frustrated because he was responsible for producing profits in the original company, yet Dadís new entrepreneurial venture was sucking profits and cash out. What was a frustration a few years ago could be a full blown crisis today. Back then, the company was making sufficient money to be able to support both businesses. However, in times of recession, that is a luxury you probably canít afford. Define what it is that constitutes your core business and STICK TO IT!

9. Developing a marketing plan with accountability. 

It seems that in every recession we get calls from companies that say, ďI need to put together a marketing plan right now.Ē The best time to have created a marketing plan was actually two years ago, but since we canít do anything about changing history, developing a plan now is better than not having a plan at all. A good marketing plan is based on formal or informal customer research. Your customers, suppliers, and advisors may have insightful things to tell you that may surprise you about your business and your core competencies. A second component of a good marketing plan is to analyze current market outreach - including your website - for its return on investment (ROI). No marketing plan is complete without assigning accountability; someone on the team should be giving you weekly progress and status updates on the implementation of the marketing plan.

Harry Browne, Vice President
The Advanced Strategies Group
330 Madison Ave, 9th Floor
New York, NY 10017
Toll Free 877.ASG 0 TAX 
Fax 800.778.8701

Harry Browne, Vice-President
The Advanced Strategies Group, Inc.


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