Pump it up: strengthening your business in a weak economy.

• Author: Macaluso, Paul
• Position: Businessmanagement

Companies are facing a most unstable business environment. Financial officers and CPAs advising clients are in a position, however, to provide guidance to distressed--and healthy--businesses on ways to protect and strengthen themselves for the long haul. These efforts will also help position businesses to take advantage of the substantial opportunities that come with economic turmoil. But given today's complexities, where should they begin?

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If your (or your client's) business is under stress, you must quickly prioritize critical issues, assess the options available to resolve them and develop a realistic execution plan. Common focus areas include rationalizing product lines and cost structures, divesting or closing-troubled business units, managing working-capital, and potentially restructuring debt and other core operating agreements.

If the business is performing, but needs strengthening to withstand economic trends, you must optimize the revenue portfolio (products and services), reduce and efficiently manage costs, improve cash management to release liquidity into the business, and stabilize your supply chain.

After performing this analysis, many companies struggle with defining a course of action and, more important, securing management consensus on the path forward. The following steps will help meet those challenges.

Step 1: Identify Major Components

Most organizations can be divided into three categories:

* Core: Operations, assets and people that are critical to the company's prospective business model and operating strategy.

* Non-core: Operations, assets and people that individually or collectively represent a valued asset that is not core to the company's future operations, but could be monetized to generate capital.

* Redundant: Operations, assets and people that represent a drain on the company's capital and should be redeployed or eliminated.

Step 2: Strengthen the Core

Focus on revenue and cost optimization versus pure cost reduction. At the first sign of financial stress, companies invariably cut overhead and related support costs. However, in today's environment, it's critical to take a wider view of the enterprise.

At an ever-increasing rate, competitors are reducing prices, customers are extending their payment terms and costs are falling further out of alignment with the sustainable revenue base. Consequently, companies should challenge their product and service offerings from a revenue and direct margin perspective...