Top 10 Survival
Tactics in a Tough Economy
By Thomas Houck
Jim is a small business owner who’s been watching the economy
evaporate in front of his eyes. Stress isn’t the word to explain
how he feels. With his wife staying at home to raise their youngest
child, his business bears the entire financial burden of funding
their mortgage and lifestyle. If the slowdown continues, not only
will his nightly tossing and turning get worse, he may have a
full-blown nervous breakdown.
Jim is fortunate to have a neighbor, Ken, who helps small
business owners “lead better lives by running better businesses.”
Since his business had gone so well for the past 10 years, Jim never
felt he needed a consultant. Until now. His gracious neighbor, Ken,
offered Jim two hours of his time gratis to share the “Top 10
Survival Tactics in a Tough Economy.”
Cash flow is king: As a small business owner, you must know
how your cash flows. This isn’t fancy accounting; it’s simply
tracking how cash comes in versus how it goes out. Take two hours,
and use your QuickBooks or check register to get a grasp of this
2. Trim the fat: Many small businesses experienced a tremendous run in the
last 10 years. Since they had good cash flow coming in the door,
they allowed fat to accumulate in the things going out the
door. Now is the time to look at where your money is going, and
eliminate unnecessary items. This includes the business Hummer,
that expensive copier lease and the T1 connection instead of basic
cable modem. You may need to make some tough decisions about
eliminating employees. It’s critical that you get your cash
outflows to a manageable level ASAP.
Look into the future: When clients and projects were
rolling, most entrepreneurs believed that new business would
materialize whenever things temporarily slowed down. Those times
are gone. Analyze what money is coming in during the next three
months, specifically from where, and when. Compare this to the new
cash outflows that you assessed in the step above. If things are
tight, that’s fine; if more is going out than coming in, trim more
and find additional income. Do this exercise each month, always
looking at least three months out.
4. Get back to
When you first went into business, you may have had to fight and
claw to make ends meet. Make a list of the things you did back then
to bring in revenue. You probably moved away from many of those
strategies when business improved. This is the time to aggressively
return to them.
Avoid the evil temptation: It’s tempting to use debt and
credit cards to borrow your way through slow times. Since no one
knows how long this slump will last, borrowing may result in the
demise of your business. Say “NO” to using credit cards, the equity
in your home, or any other borrowing. Resolve that you’re going to
scratch and claw your way through this using the cash flows of the
business. You’ll come out stronger in the end.
Emergency: You absolutely must have cash reserves,
just in case. If you have any money right now, create an emergency
fund that equals one, two, or three months of your cash outflows.
Put this in an account, and don’t use it unless it’s life or death
for the business. This provides a cushion just in case something
bad comes along at the worst possible time. If you don’t have cash
now, do everything you can to build up such a reserve.
Banker’s hours: Your banker is probably as scared as you
are. If you’re having trouble keeping up with your obligations,
steer clear of him until you can show him a concrete plan for
getting cash flows back in shape. Use the steps above to create the
basics for the plan, and ask your CPA to help you format it. Once
it’s complete, communicate to your banker clearly, and ask him to
help you implement it. If it’s a quality financial institution,
they’ll want to see you make it, and help you any way they can.
Who lays the golden eggs? Don’t forget who’s paying your
bills right now—your customers. Although you want new
business, it’s imperative that you keep your existing ones.
Your competition is desperate, and they may try anything to
get your customers. Call your clients yourself, ask them how
they’re doing, and if there’s anything you can do to help them out.
Ask if they’re happy with your service, and what can you do to
provide them with an even better experience going forward.
If you don’t work on the important things, the important things
won’t get done: Many business owners are in the same
predicament as you. The ones who survive will do so because they’ll
do the things above ASAP and get their ship righted. You must make
time to work on your cash flows, and improve the customers
experience NOW. Set aside a full day within the next week to work
on the items above, without interruptions and excuses. You might
even consider a Sunday, when things are quiet.
Stress: The difference between which businesses get through
this slowdown, and which don’t, has a lot to do with the decisions
they make. To make great ones, you must think clearly. When you’re
stressed, it’s nearly impossible to make big decisions and show the
leadership that’s needed to survive. Some suggestions to lower your
stress level include: a daily 10 minute relaxation CD that walks you
through deep breathing and stretching; yoga, exercise, or outdoor
activities with your family. Anything that allows you to get your
mind off things and relax is good.
Entrepreneurs have a sink or swim, do or die mentality.
Focus on the right things, and you’ll get through this.
Jim left Ken’s
house knowing he had a tough road ahead of him, but felt he had the
necessary tools to face the challenges head on.
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