MJSA. Professional excellence in jewelry making and design.

Click here to return to Coronavirus Resources page


Surviving an Economic Downturn

Executive staying ahead of a recession

Positioning your company to survive a recession and achieve ultimate success

By Terri Wallo-Strauss

This article originally appeared in the January 2019 MJSA Journal.

How exactly do you plan for a recession? It’s not easy, especially in a discretionary industry such as jewelry, say experts. If people are more budget conscious, they will pull back from discretionary purchases—but it may be hard to determine how much. There will still be weddings, birthdays, and a viable market. You just need to strategize how to ride the economic wave.

Dr. Bill Conerly of Conerly Consulting based outside of Portland, Oregon, helps companies develop strategies to reduce risk and says that there are steps you can take to minimize a recession’s harmful effects and help your company survive. And it all starts with creating a recession contingency plan, and then choosing the tools and strategies that will work best for your business.

However, he notes that there’s no one-size-fits-all plan.

“There are many tools in the toolbox,” he says. “A big company will choose different tools [than a small company]. No right formula exists for every business.” For example, Conerly says a large company can do detailed expense projections for various activity levels, but a small business owner may have to make educated guesses.

To help you in your planning process, let’s take a look at some of the steps you should be taking now to help your business survive the next economic downturn.


Identify Strengths and Weaknesses

Positioning your business for downturns starts with turning a critical eye to your operation, beginning with outlining your company’s strengths and weaknesses. This will help you realize the aspects of your business that will need to be shored up as well as the stronger parts of your business that will likely help you to survive the bad times.

“The first step is understanding how vulnerable you are,” says Conerly. “This can vary by geography and style. Are you in a mall, a one-person stand at a market? Do you have an online presence that is successful?”

For example, if you are in a mall and that mall is already experiencing a loss in foot traffic, it will be a clear indicator that you may need to up your online game or begin implementing strategies that will help reduce expenses.

“Once you know your vulnerability, typically in the form of revenues under a recession assumption, you can look at expense reductions that leave you profitable, or at least break-even,” says Conerly.

It’s important to look at all parts of a business with an unemotional eye. Conerly suggests looking at gross profits for each line of business. In most companies, some lines are much more profitable than others, though they may tie up comparable amounts of cash for inventory.

“If your projections tell you that you’ll likely run short of capital, eliminate lines with high inventory levels relative to gross profits,” he says. “Maybe you have a line of items that you’ve always made, such as watches, but in the end, that line just doesn’t do that well. It may take extra in-ventory dollars and staff time. Abandon it if it isn’t that profitable and steady what is.”

In addition to looking at building up any weak points in your business, look for ways to define your competitive edge. “During a downturn in the market, it’s particularly important that you thoroughly understand your competitive advantage and place a heavy focus on promoting it,” says Larry Blaine, Ph.D., president and founder of Decision Path Management in Stockton, California. “Rather than trying to be all things to all people, be a specific resource for specific customers.”

Michael Evans, managing director of the Newport Board Group in northern California believes that companies need to look at what sets them apart from their competition. “What distinguishes your ability to serve customers effectively?” he asks.


Watch the Cash

Cash flow is always near the top of the list in a recession contingency plan, says Conerly. When the downturn occurs, you need to be in good fiscal shape so that you can weather the storm.

“In your budget, you have a cash reserve for tight times,” says Blaine. He says across the board 10 percent of your budget should be cash reserves—enough money to survive a recession.

“Each month, be sure that you compare your monthly budget/pro forma to actual expenses,” advises Blaine. “Keep the cash flow on track and positive. Have a weekly or monthly budget review that is maintained. Look for ways to trim expenses, but don’t short-change important items, such as your marketing efforts.”

Survival of the Fittest Cash Flow

Evans agrees, adding, “Maximize cash flow by narrowing the timing between sales and outlays for costs you incur in advance, such as inventories.” He recommends offering discounts to customers for paying upfront or paying a larger deposit—a tactic that can be used when taking on custom work, for example.

You should also review your cash outflow, says Conerly.

“Before a recession begins, have an idea of where cash outflow can be reduced,” he says. “During a recession, a capital spending project may need to be stopped or some inventory liquidated.” You may not know when the downturn is going to occur, but you’ll know where to find that cash if you need it.

Companies offering credit to their buyers should watch trade credit terms. The tendency when sales slow is to offer easier terms to boost sales, but that’s exactly the time to tighten credit standards to prevent losses.

“As the downturn occurs, accounts receivable can become accounts uncollectible very quickly,” says Conerly.

And don’t start a knee-jerk pricing increase. Blaine says often companies do so in the fear that sales will decrease and higher prices will compensate for that anticipated downturn. 

“It actually has the exact opposite effect and makes the situation worse,” he says. “Maintain prices while simultaneously providing more for the money. In this way, customer loyalty will provide the long-term viability for your business—through good times and hard times.”


It’s Time for a Credit Check

When things are good, it’s time to go shopping for credit. Blaine says even if your business is prepared, he still recommends staying proactive to maintain financial strength.

“There is always a need for good credit,” he says. “It’s easier to get a line of credit when business is good. If you wait until you’re desperate, it will be harder to get, and the deal you do get will have harsher terms. Taking action after you’re suffering from a downturn is a mistake.”

It’s also important to use that line of credit responsibly during tough economic times.

“A line of credit should typically be used as a short-term support system,” cautions Blaine. “It should not be used for basic survival unless you have absolutely no choice. If you need the line of credit to survive, to continually pay for payroll or if you are sinking, you’re already in trouble and should consider changing the entire structure of your operation.”


Evaluate Inventory

Experts say inventory can be an issue, especially in an industry where precious gems and metals are involved. “Know how to control inventory,” advises Blaine. “Not controlling inventory will get you sideways. You can’t have a million-dollar in-ventory and sell $200 worth of goods. You have to control it by understanding buying patterns and where your margins are.”

Blaine says if you have a proper inventory management system, it will allow you to track each item sold and the margins it offers. “That’s simply a part of good management practices and should be instituted whether the company is in good times or bad,” he adds.

Inventory control needs to change in a down economy, Blaine says. “See what can be done to reduce inventory costs without sacrificing the quality of goods or inconveniencing customers. Are you ordering too many of particular items? Can an item be sourced somewhere else at a better price? Just because you’ve always ordered something from a particular supplier or done things in a particular way doesn’t mean you have to keep doing it that way—especially when those other ways may save you money.”


Consider Personnel Costs

Sometimes people start to see a downturn and begin to clean house in regard to personnel, which is often one of a company’s largest costs. However, it’s more important to make smart personnel decisions based on your needs rather than your fears.

“You need to look at the numbers first,” says Conerly. “If you think you will have 20 percent less revenue, what does it take to break even with that 20 percent less? Maybe you will need to cut staff by 10 percent.”

While you should plan ahead to make personnel cuts in the event that they become needed, it doesn’t necessarily mean that you need to prepare a list of the specific employees you would cut.

“Spending time figuring out exactly who to cut is premature,” Conerly says. “When the recession comes, routine turnover means you’ll have different people working for you, at different performance levels.”

If you do wind up needing to cut personnel, be extra judicious about how you communicate your cuts, warns Steve Yastrow of the Chicago-based Yastrow and Co. Yastrow has authored several books and travels extensively to consult and conduct workshops on how companies can improve their performance by creating compelling experiences for customers. He says a committed team is the foundation of a solid brand.

“If the team senses they are on the chopping block, fear will drive them,” says Yastrow, who says he once traveled to a resort that was making razor thin cuts, such as not stocking pens in the rooms. Employees started thinking that if the resort was going to that extreme, they were next. Fear was taking over their commitment.

So how do you address the obvious when employees are naturally concerned that an economic downturn could cost them their jobs?

“You can’t promise there won’t be cutbacks,” says Yastrow. “You can help them see that the best path to weathering the downturn is to create experiences that help customers love doing business with your company. Customers will still be spending, they’ll just be spending less. Let’s make sure the ‘less’ is with the competition, not with us.

“Share your vision with your team,” he continues. “When employees have a shared belief in why your company matters, that’s when employees feel commitment. That commitment will drive results.”

Steve Yastrow Quote


Promoting Your Brand

Marketing is an important factor to think about now—before the downturn. Blaine advises that while you should continue to seek new clients, you should also spend just as much time looking for ways to obtain more business from your current customers. To achieve this, you should consider offering rewards or catering to what your customers need from you.

“Have an event that says thank you for being my client,” says Blaine. “Send them a thank-you note. Do everything to maintain those relationships. Remember, unless you are the only game in town, which is unlikely, your customers have options.”

Yastrow also believes that keeping those current customers committed is key in a downturn. He says if a company develops commitment from existing customers, they will do well during a recession.

However, he concedes that while customers may buy fewer discretionary items in a recession, they won’t stop completely. “If your customers are committed to you, the competition will suffer more than you,” he says. “I worked with a seller of high-end fashion during the last recession. Did the average sale price go down? Sure, people may focus on less expensive products. But did their loyalty go up over this period, helping them thrive during and after the recession? Yes. Why? Because they focused on motivating customer commitment.

“Committed customers care about your business more than they care about your competitors,” Yastrow continues. “Committed customers will tell people how great you are and go out of their way to buy from you. When you have committed customers, your business is better and your potential performance improvement is usually greater than the negative impact of an economic downturn.”

The answer to keeping those customers coming back is ensuring the entire experience is exceptional from beginning to end. “Marketing that actually works is when the entire experience is one of brand harmony,” says Yastrow. “The entire experience must blend together to tell one, clear compelling story.” He adds that all points of contact, from the website to interactions on the phone to the physical environment to billing, are involved in that story.

Finally, experiment with your marketing now while the economy is on solid ground. You don’t want to wait to start throwing things at the wall to see what will stick once the economy takes a downturn and you may be feeling nervous.

“During a recession, I discourage new marketing initiatives that are completely different than what you’ve done in the past,” says Conerly. “In the good times, it’s [better] to experiment than when things go south.”

Seek Professional Help

As you work on your pre-recession business plans, you may want to take the time to enlist the help of a trusted professional. An accountant may seem like a good choice for sound business advice, but financial experts recommend choosing carefully when seeking recession contingency advice. The accountant that does your taxes may not be the best person to consult about shoring up your business before the next recession.

“Some accountants look backward because they are used to working with you on tax information,” says Conerly. “This is the time to look forward, though. Have a conversation with them to generate ideas.”

If you want additional sources of help, the Small Business Administration has mentors through its SCORE program. Many times you can ask for advice and receive a lot of good overall guidance as well.

Regardless of who you seek counsel from, you’ll likely need to present them with the one document that many businesses are lacking, and that can also make a big difference in how likely your business is to survive an economic downturn: a business plan.

“In the end, a solid business plan remains the key,” says Blaine, who says he frequently finds businesses without one. “The business plan comes first. Starting, expanding, or simply operating an ongoing business without a business plan would be like flying a plane and determining the destination as you go. The specifics should be defined within the context of the plan’s strategic approach.”

Because it should define specific measurable goals that you can track, a good business plan will often be a company’s first indicator that the economy may be sliding.

“It’s your personal tune to how things are faring for you,” says Blaine. “It’s more than just surviving month to month. You need to be able to monitor, and that’s what a business plan does. You will see things are changing so you can then start making different decisions or picking different tools. You’ll be light years ahead of other businesses that don’t have a plan, and you’ll survive.”


Click here to return to Coronavirus Resources page

COVID-19 Resources

MJSA Advantage

MJSA members receive exclusive informational and marketing benefits, from free promotional placements to information research services.