TR Footnotes — FN.0910
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J. Tol Broome

How to slug your way back to the top in your tow business

In the June issue of Footnotes, our cover story, “The Road to Revival,” gave towing company owner/operators tips on better business practices that would help them survive the recession and prepare for a future economic revival. Now, although that road is still bumpy for many, there are Clear indicators that the country is, however slowly, pulling up and out of the down times.

This follow-up article takes towing and recovery business owners to the next stage on the road to revival: how to capitalize on an economy that, whether it seems like it or not, is in the early stages of recovery.

The Great Recession of the past three years is the worst economic downturn in 80 years. However, many economists have declared a technical end to it because the nation has seen two consecutive quarters in which Gross Domestic Product has grown by more than three percent, and because of other factors such as consumer sentiment, manufacturing capacity utilization, and business inventories that have also been trending in a positive direction.

There is no doubt, however, that many towing and recovery business owners aren’t sharing in the belief that the economic malaise is nearly at an end. So why doesn’t it feel like the downturn is over? Some towing and recovery businesses no doubt continue to struggle, with revenues well below pre-recession levels. And headlines continue to report negative economic stats about high unemployment, a continued slide in housing prices, and record government deficits at all levels.

Recessions are a lot like hurricanes with a wide range in the level of severity, from a relatively mild Category 1 to a horrific Category 5. The 2001-02 recession was like a Category 1 storm. During the few months of that very mild economic downturn, many businesses felt the pinch, but after it came and went, most soon moved on to even better results.

In contrast, The Great Recession of 2007-09 has been akin to a Category 5 hurricane. The economic storm was very severe and lengthy, many businesses did not survive, and those still standing are left with a daunting debris field.

Turning Point

What we are experiencing right now is called an inflection point, where the downturn is ending and the recovery is only just getting started. The storm has finally passed but we are facing the debris and the clean-up. So what should you do now to deal with the clutter and move forward to take part in the recovery?

First of all, the fact that your towing company is still in business is no small feat. The Great Recession debris field may be littered with some towing and recovery business closures, but for all of those that still have the lights on, here are eight tips that will help owners participate in the economic recovery.

Apply some of the following tactics to your towing and recovery business and you will greatly improve your chances of thriving during the period of general economic revitalization that is emerging.

1. Focus on service quality. This is a great place to start, because it is something over which you have direct control. It might be unclear how to bring more customers through your front door, but you can ensure that all who do will have a great experience with your shop.

Service quality starts with you, the owner. If you maintain a positive attitude with your employees, they will pass that attitude on to customers and look forward to coming to work each day. If needed, let them know that you insist that they take the same positive approach with customers.

If any employees lack sufficient knowledge or training, make sure they get up to speed in order to help meet customer needs. An added benefit of excellence in service quality is the word-of-mouth advertising that will result, which is sure to bring more customers to your shop.

2. Consider replacing employees. You have any employees who are not getting the job done, now is the time to consider a change. With unemployment remaining very high, the job market is flooded with very able and eager people looking for steady employment. Some no doubt have extensive experience in towing and recovery, and will be ready to hit the ground running with minimal training.

It is uncomfortable to terminate employees during a period of high unemployment, but you will not maximize the potential of your business without the right people in place.

3. Re-assess your business model. Is likely that over the past two-plus years you have been focused primarily on survival. But you need to resist the temptation to remain in that mode as the economic recovery ensues. Now is a great time to assess your business model.

Start with your location. If you are near the end of your lease term, consider whether or not a different location makes sense. There are some great deals for retail space right now, and you might be surprised by what you can now afford by upgrading your location.

Second, even if your lease is not near its end and you like your location, you might be successful in renegotiating a lower rate in exchange for a longer term.

Next, consider some other key questions: Are you still meeting the needs of your customers? Do you have the right product and/or service mix and price points relative to the market? Should you consider other revenue sources, such as online sales and marketing?

What should you be doing that you are not doing? What should you stop doing that you are doing now?

If you determine that you need to make some business model changes, map out a plan and a timeline for implementation and follow it.

4. Take advantage of the challenges faced by competitors: Just as you have been dealing with a Category 5 economic storm over the past two-plus years, so have your competitors. And while it may be tempting to focus inward during this period of “debris cleanup,” it actually is an excellent time to assess your competitive landscape and grab market share.

While other towing business owners operate in a survival mode, focus on two or three things you can do to improve your competitive position in your local market. These tactics might include new product or service lines, different local advertising, or targeted discounts to drive more traffic.

While it may seem counter-intuitive, this also could be the ideal time to buy out a competitor if you have access to capital (including friends and family). Some of the best business-purchase deals are done at economic inflection points such as the one now prevalent in the current commerce environment.

5. Manage expenses closely. Have likely been in a “hunker down” mode to hold expenses down during the recessionary period. This is no less important during a recovery. Managing expenses closely will allow you to stock more inventory, offer discounts to increase foot traffic, and keep loans current. And if there are some areas that could still generate potential savings (e.g. different staffing models, change in shop hours), consider implementing them now.

Another key point regarding expense management is control over ordering supplies and inventory. Some businesses allow most anybody to place orders, resulting in wasteful spending. If you have not already put in strong controls in ordering, this can be a great way to reduce expenses.

6. Preserve working capital. Working capital is the investment you have in accounts receivable and inventory minus accounts payable to trade creditors. You can generate a significant level of cash in your business by improving your working capital position.

For instance, if you are in product sales, like towing equipment, you could reduce your inventory level by $5,000 on items you don’t need to replace. Take a good look at your current inventory. If some of it is slowmoving, mark it down, get rid of it, and don’t replace it. Invest those dollars instead in more of the inventory that moves faster and your working capital position will improve.

You also can generate cash by collecting receivables faster or paying trade creditors slower. If you sold services or product on credit and have some customers who routinely pay you in 45 days when your terms are 30, then ask them to start paying on time.

Start calling late accounts as soon as they become five days late and continue calling every few days until you are paid. Likewise, don’t pay your trade creditors early — this ties up working capital, which means less cash to run your business.

7. Work closely with creditors. Recessions can be brutal when it comes to meeting debt obligations. Revenues and cash levels fall, but debt payments don’t. If you find yourself in a position in which it is difficult to cover all debt obligations, don’t panic. Instead, be proactive. If you communicate with creditors, you will have a much better chance of keeping them off your back, allowing you to focus more on running your towing business.

Here are some pointers to help you in dealing with creditors during this economic recovery:

• Keep your promises. Try to underpromise and over-deliver. If you know you will be late, contact your creditor and let him know that you might be 10 days late, and then try to pay in five days.

• Ask for longer terms. A supplier might be willing to give you 45-day Terms instead of 30. And your bank might be willing to extend your three-year loan to five years.

• Rotate late payments. If you have 20 creditors and you can’t pay everybody on time right now, pay 10 of them on time this month and the other 10 on time next month.

• Keep essential creditors current. Every towing and recovery business has a few creditors that are essential to keeping the doors open. If you can’t keep them current, be sure and keep them well informed.

• Avoid surprising your banker. I can tell you from my many years in banking that the thing bankers hate most is surprises. Bad news we can deal with as long as we have fore warning.

• Consider cash management services. Cash management services such as lockbox, computer-based balance reporting and funds transfer, automated clearing-house services, and controlled disbursement can significantly improve your cash flow. Your creditors will like that.

8. Keep personal credit clean. Most creditors view the towing business and the business owner essentially as one in the same entity. So it is imperative that you keep your personal credit clean during an economic recovery, particularly if you think you will need to borrow money once a sustained expansion period sets in.

There are five key components of a personal credit rating, listed in order of importance:

• Timeliness of bill payments (includes tax liens, bankruptcies, and judgments)

• Level of outstanding credit relative to lines available (i.e. a $15,000 credit card with $14,000 owed)

• Length of time your credit has been active

• Types of credit

• Acquisition of new credit There are three major credit-score sources: Equifax, Experian, and Trans- Union. If you aren’t sure what your credit score is, it is advisable to go to the website of one of these credit bureaus and find out.

Newspaper clipping graphic courtesy of; highway sign graphic courtesy of iStockph