As we mark the 200th anniversary of the birth of Charles Darwin, “Survival of the Fittest,” the phrase he popularized, is more timely than ever in these tough economic times.
Operator Tom Miller offers fellow operators some practical financial advice by drawing on his experience running a transportation company, working at a bank, and holding an MBA.
The travel business is just one of many industries hurt by the recession. A recent survey from the Association of Corporate Travel Executives found 71% of its member companies plan to spend less on travel this year than in 2008. Most are ready to cut budgets by 10% to 20%, compared to much rosier forecasts just last September. Hotels, restaurants, and convention centers are feeling the pain, along with airlines and ground transportation companies.
For perspective, it’s important to understand that we are experiencing the worst financial crisis in our lifetime, as a downturn in housing led to the banking meltdown, frozen credit markets, investment losses, reduced consumer spending, and spiraling unemployment.
To survive in this climate, operators needed to take action months ago on critical financial decisions:
Get A Budget
Most companies likely already have eliminated some expenses or downsized their fleets. However, the depth of this recession requires much greater response than ever before. If you have not implemented a budget, it is time to start. If you have a budget, then do a “sensitivity analysis” of what happens if revenues are 10% to 20% lower than budgeted. What does this do to your anticipated cash flow and how can you respond?
Cut Your Budget
Once you have completed this analysis, are there specific expenses you can reduce or eliminate? For instance, we lowered our mobile telephone charges by $1,000 a month simply by analyzing the bill and making appropriate changes for the service we need.
Find New Revenues
It’s also important now to consider new sources of revenue. If your client mix is primarily corporate, perhaps there are opportunities to pursue retail business. If you have a relationship with a hotel sales department or a concierge for corporate conference work, you might leverage it into a relationship with the catering department to begin getting wedding and special event referrals. If you have mini-buses for corporate charter business, look for opportunities to provide some daily shuttle work.
What is the status of your website? Is it generating traffic to your business? Have you considered doing a Search Engine Optimization (SEO) or Search Engine Marketing (SEM) campaign? There is too much commerce being conducted through the Internet to not consider how you can drive more customers to your company through e-commerce.
Examine your banking relationships. Do you have an adequate line of credit? Are you current on your debt service, or does it require restructuring? Managing accounts payable and accounts receivable also is important. Understand which payables can be stretched and which cannot. Managing cash flow by effectively handling accounts receivable also will make a difference.
If you are not adequately capitalized, consider ways in which you can add capital. Do you need to consider an equity injection or a loan from family and friends in the form of subordinated debt? If you are having trouble servicing the debt for your vehicles or meeting other obligations, this money can help meet those monthly expenses through the recession. If you do inject funds into your business with a loan, be sure to document the transaction with a formal agreement stating the interest rate and repayment terms. I would suggest structuring the agreement with interest only for a period of time, perhaps 6-12 months, followed by principal payments over a period of time such as three to four years. This will allow maximum flexibility to survive the current downturn.
Obviously, in a turbulent economic climate, cash is king. Consider all ways to conserve cash without affecting customer service. Reducing payroll is usually an option of last resort, but you also want to keep your best performers for the inevitable recovery, when it comes.
Preparing For The Worst
It’s a potential reality that some operators won’t want to face, but it is wise to have an exit strategy if the above measures don’t work.
What if the recession lasts longer and is deeper than the experts predict — well into 2010 or beyond? Will you be able to survive? If not, there are two viable options: merge with a similar company to save money, or liquidate assets and close.
If you’ve been proactive in cutting costs, finding new revenue and managing cash flow, the outlook should be better for you. There are likely opportunities in this economy for your company not only to survive, but to thrive. Seek them out!
Tom Miller (email@example.com) is president of Pittsburgh-based Regency Global Transportation Group, which had just two sedans when he founded the firm in 1991. Regency, which serves corporations, universities, law firms, and resorts, has a fleet of 35 chauffeured vehicles. Before founding Regency, Miller worked for PNC Bank for 13 years. He holds an M.B.A. from the University of Pittsburgh, a B.A. in economics from Bethany College, and is a 2005 graduate of the University of Pittsburgh’s Institute for Entrepreneurial Excellence.