With many industries feeling the impact of declining oil prices, Doeren Mayhew recently gathered a panel of seasoned CFOs from the construction, energy and service industries to share their perspectives on best practices and steps to overcome challenges in today’s economy. Featuring speakers from Global Fabrication Services, Lockwood International, The Signature Group and Karsten Interiors, the panel identified three areas to focus on:

  1. Implement strong cash-flow management practices. Many small and mid-sized businesses fail due to the inability to manage their cash flow, especially in a difficult economic climate. Regularly tracking your cash flow allows you to know exactly your cash position at any point in time and adjust it accordingly. It is imperative you know your sources of cash and track where it comes in and goes out. Businesses with a backlog of long pay-cycle vendors can negotiate discounts for on-time payment of invoices. Other useful strategies include negotiating “pay when paid” agreements with vendors and suppliers, and using credit cards to pay business invoices, stretching out the payout period. Businesses that extend credit to customers and experience an increase in extended receivables must watch those accounts closely and may consider tightening credit requirements. Additionally, building long-term relationships with bankers who understand your business and your income sources can help in times of uncertainty.
  2. Closely track your workforce headcount. Tight profit margins call for implementing “do more with less” best practices. When analyzing your workforce to cut expenses, look to trim positions that are redundant. In many instances similar functions can be combined or shared among other employees. Identify complacency in the workplace. Every department has complacent employees. Be aware of employees who pose on “guard duty” to protect their functions. Demand high performance from employees. Trust your instincts, if you sense you are heavy on headcount, you probably are. Act quickly, understanding these are difficult decisions affecting families, but are needed for the financial health of the entire organization. Form strategic partnerships with vendors to assist in controlling your headcount. If it is financially beneficial, shift functions to vendors. Vendors provide flexibility in managing workforce costs in that they can easily be reduced or eliminated entirely if necessary at a short notice and at a much lower cost. Always look at investing in technology before adding to your workforce.
  3.  Consider diversification. In many industries, large market fluctuations are now the norm. In the energy industry most large capital projects have disappeared and gross profit margins have declined. In order to weather this downturn, many businesses have to adjust their expectations and identify new business strategies and opportunities. Challenge your sales team to think “outside the box” to leverage business opportunities that exist. This may mean pursuing smaller projects in lieu of large ones or pursuing new business that previously did not seem viable, but makes sense in today’s environment. Explore expanding your offerings. Identify industries or areas where the company has made money and look for opportunities to expand that service or product into other industries or for other purposes. Are there business opportunities in new markets that have opened up to U.S. vendors? If so, consider expanding your business into other countries.

For assistance navigating today’s economic challenges, contact Doeren Mayhew’s CPAs and business advisors.