Maintaining Business Health In An Economic Downturn
By, Peter Spellman, Director Music Business Solutions

Many in the music industry are experiencing the same things right now as we all seek to grapple with the new world disorder. The economic downturn and September 11 attacks have pounded already weak sales in a music industry grappling with rampant piracy and slowing CD replacements. Gigs are drying up, distributors are 120 days out, customers are staying home, and your bills are piling up. Music groups are under pressure to make deep-seated changes to survive the times ahead and the "ripple effects" will be profound.

Most likely your business is feeling the effects of the sudden economic downturn as well. I can sense it in my clients too. People are a bit paralyzed right now and it's showing in more "cocooning" and a general reluctance to part with hard-earned cash from a paycheck that may not arrive next month.

Despite a gloomy money picture, it is crucial to keep your head out of the sand. Times like these force us to reevaluate out deepest values and desires. We have before us a golden opportunity to take a fresh look at our businesses, streamline and strengthen our operations, and put ourselves on steadier economic ground.

Here are several management tips to help guide you and your company through these turbulent times:

1. Play Doctor.

An accurate diagnosis of the cause of your business problems is essential to resolving and preventing their recurrence. Though external factors play a big role in business dynamics, in most cases, the real cause of business troubles is often internal. So the first thing you should do is take your internal pulse.

Although every small business is unique, here are the most common causes of financial difficulty:

• Expenses that exceed revenues
• Improper or inadequate financing
• Overly rapid growth funded by debt rather than by business profit (watch
• those free credit card offers!)
• Poor management skills and business know-how among business owners/key
• management (the #1 cause of business failures in the U.S.!)
• Ineffective mechanisms for decision-making and problem-solving
• Inadequate attention to marketing or an ineffective marketing program
• Key customer groups experiencing a financial downturn
• A poor or faulty product or service
• Lack of an adequate market for a product or service
• Unwillingness to look objectively at business difficulties

2. Choose Your Medicine.

The specific actions you take to stabilize your business and resolve its problems will depend on your diagnosis. Following are some possible actions to consider:

• Evaluate all expenses including business-related travel or entertainment,
• subscriptions, the purchase of supplies, raw materials or equipment,
• insurance, the use of outside professionals, postage, phone services, etc.
• to determine which can be reduced, delayed or eliminated.
• Eliminate or shelve products or services that are not making money.
• Evaluate the effectiveness of your marketing activities and modify as
• needed.
• Assess current staffing levels to determine if there are positions that
• could be eliminated or consolidated without damage to your company's
• effectiveness and efficiency.
• Reduce staff salaries and/or benefits.
• Reduce your own salary.
• Cut prices. This action alone can sometimes provide the cash a business
• needs to turn itself around.
• Defer maintenance activities as long as possible.
• Increase efforts to collect your accounts receivables. Call those who owe
• you money, and press them for it. When necessary, use the services of a
• collection agency.
• Delay paying your accounts payable as long as possible but without
• incurring additional charges or jeopardizing your standing with suppliers,
• creditors, your bank, etc.
• Increase the productivity of your sales staff through special incentives,
• bonuses, training, etc.
• Sell assets that are not needed, including equipment, gear and office
• furniture.
• Consider moving to less expensive space or reducing the amount of space
• you are renting.
• Identify new sources of cash.
• Meet with your creditors, bankers and suppliers about lowering your
• monthly payments, restructuring or consolidating debt, obtaining additional
• credit, etc.
• Talk to the IRS about working out a payment plan for any back taxes.
• Improve your managerial skills and business know-how by taking classes or
• attending seminars (lots of great stuff online! ).

3. Take Your Medicine.

This (when a business is in crisis) is not a time to be secretive and protective, but a time to actually open up your situation to the people who are in effect your financial partners, and to ask them for their help. When necessary, provide your creditors with cash flow and sales projections, fact sheets and documentation that will help support your case.

If you are funded by angels or family, be ruthlessly honest about your situation and what youÕre planning to do about it.

Here are some additional cash-generating possibilities to consider:

• Cut expenses to the bone.
• Rent out office, studio or plant space that you do not need.
• When not using it, offer others the use of your equipment on a contract
• basis--evenings, weekends, slow times, etc.
• Keep less inventory on hand.
• Identify other ways to use your assets when they are not being used by
• your primary business.
• Barter for services.
• Make greater use of free-lancers, independent contractors, and interns .
• Take advantage of your recognized expertise or skill in a certain area,
• and develop a new product or service based on it that requires little or no
• additional expenditure of money, additional marketing, etc.
• Explore the possibility of a joint venture with a company in a similar or
• complimentary business to yours. For example, combine your products or services together with
• another business into one big package. You could split the profits. For example, a general business
• band can team up with a catering company to offer a package of services for corporate party and
• event planners. The possibilities here are endless.
• If you have not already done so, consult with outside professionals, such
• as representatives of SCORE (Service Corps of retired Executives, www.score.org) or your local
• SCDC (Small Business Development Center (www.sba.gov/gopher/Local-Information/Small-
• Business-Development-Centers/), as well as with your accountant, attorney or another reputable
• professional who may be able to provide you with ideas and advice.

Some of these guidelines may seem excessive or harsh; some are simply common sense reminders. But a key ingredient to successful business management is the ability to be ruthlessly objective: to clearly see what needs to be done and to respond intelligently and creatively to the challenge.

These practical steps will hopefully lighten the load and alleviate some stress so you can continue to do the work that needs to get done.

Dig deep inside and be surprised by your own potential to work things out.

by Peter Spellman

Director of Career Development at Berklee College of Music, Boston, and author of The Self-Promoting Musician: Do-it-Yourself Strategies for Independent Music Success (Berklee Press).