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Survival Tips For Small Businesses

You may be in Mail Order, Direct Mail, or you may be a local merchant with 150 employees; whichever, however or whatever---you've got to know how to keep your business alive during economic recessions. Anytime the cash flow in a business, large or small, starts to tighten up, the money management of that business has to be run as a "tight ship." Some of the things you can and should do include protecting yourself from expenditures made on sudden impulse. We've all bought merchandise or services we really didn't need simply because we were in the mood, or perhaps ... read more

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You may be in Mail Order, Direct Mail, or you may be a local
 
merchant with 150 employees; whichever, however or
 
whatever---you've got to know how to keep your business alive
 
during economic recessions. Anytime the cash flow in a business,
 
large or small, starts to tighten up, the money management of
 
that business has to be run as a "tight ship."

Some of the things you can and should do include protecting
 
yourself from expenditures made on sudden impulse. We've all
 
bought merchandise or services we really didn't need simply
 
because we were in the mood, or perhaps in response to the
 
flamboyancy of the advertising or the persuasiveness of the
 
salesperson. Then we sort of "wake up" a couple of days later and
 
find that we've committed hundreds of dollars of business funds
 
for an item or service that's not essential to the success of our
 
own business, when really pressing items had been waiting for
 
those dollars.

If you are incorporated, you can eliminate these "impulse
 
purchases" by including in your by-laws a clause that states:
 
"All purchasing decisions over (a certain amount) are contingent
 
upon approval by the board of directors." This will force you to
 
consider any "impulse purchases" of considerable cost, and may
 
even be a reminder in the case of smaller purchases.

If your business is a partnership, you can state, when faced with
 
a buying decision, that all purchases are contingent upon the
 
approval of a third party. In reality, the third party can be
 
your partner, one of your department heads, or even one of your
 
suppliers.

If your business is a sole proprietorship, you don't have much to
 
worry about really, because as an individual you have three days
 
to think about your purchase, and then to nullify that purchase
 
if you think you don't really need it or can't afford it.

While you may think you cannot afford it, be sure that you don't
 
"short-change" yourself on professional services. This would
 
apply especially during a time of emergency. Anytime you commit
 
yourself and move ahead without completely investigating all the
 
angles, and preparing yourself for all the contingencies that may
 
arise, you're skating on thin ice. Regardless of the costs
 
involved, it always pays off in the long run to seek out the
 
advice of experienced professionals before embarking on a plan
 
that could ruin you.

As an example, an experienced business consultant can fill you in
 
on the 1244 stock advantages. Getting eligibility for the 1244
 
stock category is a very simple process, but one with tremendous
 
benefits to your business.

The 1244 stock encourages investors to put equity capital into
 
your business because in the event of a loss, amounts up to the
 
entire sum of the investment can be written off in the current
 
year. Without the "1244" classification, any losses would have to
 
be spread over several years, and this, of course, would greatly
 
lessen the attractiveness of your company's stock. Any business
 
owner who has not filed the 1244 corporation has in effect cut
 
himself off from 90 percent of his prospective investors.

Particularly when sales are down, you must be "hard-nosed" with
 
people trying to sell you luxuries for your business. When
 
business is booming, you undoubtedly will allow sales people to
 
show you new models of equipment or a new line of supplies; but
 
when your business is down, skip the entertaining frills and
 
concentrate on the basics. Great care must be taken however, to
 
maintain courtesy and allow these sellers to consider you a
 
friend and call back at another time.

Your company's books should reflect your way of thinking, and
 
whoever maintains them should generate information according to
 
your policies. Thus, you should hire an outside accountant or
 
accounting firm to figure your return on your investment, as well
 
as the turnover on your accounts receivable and inventory. Such
 
an audit or survey should focus in depth on any or every item
 
within the financial statement that merits special attention. in
 
this way, you'll probably uncover any potential financial
 
problems before they become readily apparent, and certainly
 
before they could get out of hand.

Many small companies set up advisory boards of outside
 
professional people. These are sometimes known as power Circles,
 
and once in place, the business always benefits, especially in
 
times of short operating capital. Such an advisory board or power
 
circle should include an attorney, a certified public accountant,
 
civic club leaders, owners or managers of businesses similar to
 
yours, and retired executives. Setting up such an advisory board
 
of directors is really quite easy, because most people you ask
 
will be honored to serve.

Once your board is set up, you should meet once a month and
 
present material for review. Each meeting should be a discussion
 
of your business problems and an input from your advisors
 
relative to possible solutions. These members of your board od
 
advisors should offer you advice as well as alternatives, and
 
provide you with objectivity. No formal decisions need to be made
 
either at your board meeting, or as a result of them, but you
 
should be able to gain a great deal from the suggestions you
 
hear.

You will find that most of your customers have the money to pay
 
at least some of what they owe you immediately. To keep them
 
current, and the number of accounts receivable in your files to a
 
minimum, you should call them on the phone and ask for some kind
 
of explanation why they're falling behind. if you develop such a
 
habit as part of your operating procedure, you'll find your
 
invoices will magically be drawn to the front of their piles of
 
bills to pay. While maintaining a courteous attitude, don't
 
hesitant, or too much of a "nice guy" when it comes to collecting
 
money.

Something else that's a very good business practice, but which
 
few business owners do is to methodically build a credit rating
 
with their local banks. Particularly when you have a good cash
 
flow, you should borrow $100 to $1,000 from your banks every 90
 
days or so. Simply borrow the money, and place it in an interest
 
bearing account, and then pay it all back at least a month or so
 
before it's due. By doing this, you will increase the borrowing
 
power of your signature, and strengthen your ability to obtain
 
needed financing on short notice. This is a kind of business
 
leverage that will be of great value to you if or whenever your
 
cash position becomes less favorable.

By all means, join your industry's local and national trade
 
associations. Most of these organizations have a wealth of
 
information available on everything from details on your
 
competitors to average industry sales figures, new products,
 
services, and trends.

If you are given a membership certificate or wall plaque, you
 
should display these conspicuously on your office wall. Customers
 
like to see such "seals of approval" and feel additional
 
confidence in your business when they see them.

Still another thing often overlooked: If at all possible, you
 
should have your spouse work in the business with you for at
 
least three or four weeks per year. The important thing is that
 
if for any reason you are not available to run the business, your
 
spouse will be familiar with certain people and situations about
 
your business. These people should include your attorney,
 
accountant, any consultants or advisors, creditors and your major
 
suppliers. The long-term advantages of having your spouse work
 
four weeks per year in your business with you will greatly
 
outweigh the short-term inconvenience. Many couples share
 
responsibility and time entirely, which is in most cases even
 
more desirable.

Whenever you can, and as often as you need it, take advantage of
 
whatever free business counseling is available. The Small
 
Business Administration published many excellent booklets,
 
checklist and brochures on quite a large variety of businesses.
 
these publications are available through the U.S.Government
 
printing office. Most local universities, and many private
 
organizations hold seminars at minimal cost, and often without
 
charge. You should also take advantage of the services offered by
 
your bank and local library.

The important thing about running a small business is to know the
 
direction in which you're heading; to know on a day-to-day basis
 
your progress in that very direction; to be aware of what your
 
competitors are doing and to practice good money management at
 
all times. All this will prepare you to recognize potential
 
problems before they arise.

In order to survive with a small business, regardless of the
 
economic climate, it is essential to surround yourself with smart
 
people, and practice sound business management at all times.

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