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Which flag should they raise?

Knowing when to surrender

Speaking at a conference in Gatlinburg, Tennessee recently, I saw the sign of a contagious disease beginning to ooze into the community. The first sign was actually a series of signs indicating various degrees of markdowns on the prices of the merchandise with the business.

The hand lettered signs had all the indications of a slow and ugly death with the slowing increasing ‘percentage off’ pricing. The windows were dirty, and as you looked through them you could see empty boxes and display racks strewn about the business. Walking past the front door, you could quickly determine that the posted hours of business were no longer being adhered to.

Add to this the messy area inside and outside the store and for the local residents you had a front row seat to a protracted decline and death of a small business. Surely, it was a painful sight to see; not just for the one quick pass by visit, but especially for those that had watched over several months.

With the official ‘R’ word of recession now being repeated often in every newspaper and other sources of media, we not only know that we have seen this happen multiple times in our communities in 2008. And those people that make predictions, including the National Retail Federation, the picture they are painting for 2009 is even uglier than the past year.

However, all of the signs and indications I have already mentioned are not as disturbing as one large sign that appeared on the window of the business. The message was quite simple. It said, “Here’s the next one biting the dust”.

These words imply multiple messages. This is not the first business in the current run of those that have closed their doors, nor is this going to be the last one.  As one that grew up in a small town family business, and having seen a similar situation happen to other businesses, there are other unspoken messages in that sign.

It is a sign of bitterness and disappointment. Here is a person that has poured their time, money, and heart into owning a small business only to have it fail to make the necessary profit. The bitterness and disappointment are directed at both the owner and the community.

Towards themselves, the owner has these feelings because they are finding they do not have what is necessary to be successful from both a personal and a business strategy standpoint.

Towards the community, it is understandable that these feelings exist as they are wondering why the community did not support them. Too often, I have seen and heard these feelings expressed verbally from businesses that are struggling to find their place in the marketplace.

As those that work with businesses within the community, we all know of those individuals that are not going to listen to us. We can see the challenges before them, and often have great ideas to share with them. However, being an independent business often comes with an individual being an independent thinker that just has to try everything themselves.

Yet, when they come to the point where the economy becomes more of a challenge than they can handle, I believe we have a responsibility to make another effort to reach out and offer to help them make some very important decisions.

This is where the question of the flags comes in. In the heat of the ‘battle’, the business owner facing this extreme challenge likely needs help in deciding which ‘flag’ they should be flying as they make decisions.

Should it be the white flag of surrender, prompting them to close the business and minimize their losses? Doing so would also get a dying business out of the building and allow the owner of the building the opportunity to look for a healthy business to put in the location.

Or should it be the flag that implies the business is ready for the battle of the recession and ready to remain in business for the long run? In making the decision, the business owner needs to make the largest factors to be financial and strategic issues with the smaller factor being emotions.

And this is where those that work with businesses have the opportunity, and I believe the responsibility, of becoming involved. To show the businesses that will continue to be a part of the community, it is important they see that the Main Street staff will not only be there for them, but is qualified to help them make these very important decisions.

Looking at the three aspects of the decision, the smaller issue is emotions, which can be the easiest to solve. The question is whether the business owner has the mental attitude that the current challenges can be resolved and that they can mentally see the business as being profitable and viable in the community in the future.

We have all experienced C.A.V.E. (Citizens Against Virtually Everything) within our community. When a business owner begins to question their ability to survive, they often become members of the CAVE society. If the attitude is not one success, then the business owner will be doing everyone a favor by deciding to begin the closing out process now.

While not making light of the mental aspect of the decision process, it is the one for which a solution can often be created. The challenge before the Main Street staff is to help determine if the solution can and will be created. If it cannot, then the suggestion given should be to raise the white flag.

The financial and strategic issues are much more intertwined. And they often require resources that are beyond the means of the business owner.  To make the decision of which flag to raise, the business owner could look for assistance and information in several places. They could try looking to someone at the bank for part of the answers; they could also look to an accountant for part of the answers. Another candidate for assistance could be a small business professor at a local college or university.

While we can help the business owner find someone qualified to give advise, the challenge is finding someone that has the ability to give advise that is appropriate for a small business. The experience of this writer has been that too often that while the banker or accountant understand the numbers, they may struggle with understanding the small business.  Main Street staff, in many situations, can be that necessary resource that understands the small business as well as enough of the numbers to help the business owner make the necessary decisions.

The first question that needs to be answered is, “How much revenue is necessary to keep this business going for the next 12 months? The next 24 months?”

Of course, to answer that question you have to know what the expenses are going to be. A good way of getting to that number is by analyzing the year end expenses for 2008. The first half of the exercise is to label each expense as either a ‘controllable’ or ‘uncontrollable’ expense. The second half is to label each expense as either a ‘fixed amount’ or a ‘variable amount’.

Completing these two exercises, those that have the letters “U” and “F” represent expenses that cannot be challenged. All other expenses, in part or whole, are subject to review, reduction and elimination. Helping the business owner to make this determination about expenses will bring about the answer to the two questions about the amount of revenue needed for the next 12 to 24 months.

As these are people that have previously invested their time and money in our community, we have a responsibility to help these people make a decision with regard to the continuation of their business. Too often we have been introduced to a small business that is attempting to make this decision and as their information is reviewed we have found they should have closed the door many months ago. Doing so would have allowed the owner to preserve more of their assets and get a slowly dying business away from your district.

Likewise, as the amount of revenue necessary to keep the business going is determined and the owner, with your help, decides they can make a go of the business, you are likely to see a business owner that approaches their business with a stronger and more positive attitude. Knowing that they can win goes a long way toward getting rid of a negative C.A.V.E. attitude.

In the new year, each business is symbolically raising a flag. We have the opportunity and the responsibility to help the owner determine which flag to fly.

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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.

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Profits Plus Solutions, Inc.
PO Box 1577
St. Petersburg, Fl 33731
(727) 464-2182
Fax: (727) 898-3179