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 chases" 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" your
self 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 status 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 your 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
about 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 of
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 be 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 in crease
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 you 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,
checklists 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 service s 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.