I'm using these terms loosely, but you'll see my point I hope.
When business is booming, it seems to me the smart thing to do is play it very conservatively. You grow only as fast as you can grow without taking on debt, without overspending, without stretching your cashflow.
Indeed, you take the money that's flowing in and you pay off your debts. You DON'T take more money home, but stay on an even keel. Instead you spend that money on infrastructure improvements, or an increase in inventory.
By playing it this way, you may not grow as fast, but you grow manageably.
When business is bad, you take home the same amount of money, and you continue to spend everything else on keeping up the inventory and day to day management of the store. You are going to take on more risk to keep the business up, in hopes of increasing market share, of locking in the reliability factor with the customers so that they know they can depend on you.
By taking on more risk, you probably are going to take on some debt as well, but if you have gone into the slowdown without debt, this level can be kept manageable. And if you hang in there, you can probably count on the eventual recovery in taking care of this debt.
As far as I can tell, just about everyone else does it the opposite.
They spend like drunken sailors when times are good, they grow fast, they take home lots of money, and take on lots of debt. New cars, new houses, new everything.
Then when business goes south, they cut drastically, and hold on. Except, by cutting drastically, they've probably cut their own throats. When business is bad, you need to be at your best.
I think that's why I've survived this long, because I seem to never do as well as other businesses when times are good -- but never as bad as other businesses when times are bad.
As far as I'm concerned, it's been a fair tradeoff.
Most small business owners experience only one or two complete cycles in their career. (If you last long enough, you'll experience at least one boom and bust.) I've been lucky (?) in that I've experienced maybe a dozen or so, manifested in "fads."
What I mean is, I've had 30 to 50% drops in sales over and over and over again. And eventually, I arrived at my contrarian approach to the business cycle that I mention above.
The last five years have been the best five years we have experienced in terms of profits.
Which is the result of not making as much money as everyone else during the boom years.
2 days ago