You may be in Mail Order, Direct Mail, or you may be a localmerchant with 150 employees; whichever, however orwhatever---you've got to know how to keep your business aliveduring economic recessions. Anytime the cash flow in a business,large or small, starts to tighten up, the money management ofthat business has to be run as a "tight ship."
Some of the things you can and should do include protectingyourself from expenditures made on sudden impulse. We've allbought merchandise or services we really didn't need simplybecause we were in the mood, or perhaps in response to theflamboyancy of the advertising or the persuasiveness of thesalesperson. Then we sort of "wake up" a couple of days later andfind that we've committed hundreds of dollars of business fundsfor an item or service that's not essential to the success of ourown business, when really pressing items had been waiting forthose dollars.
If you are incorporated, you can eliminate these "impulsepurchases" by including in your by-laws a clause that states:"All purchasing decisions over (a certain amount) are contingentupon approval by the board of directors." This will force you toconsider any "impulse purchases" of considerable cost, and mayeven be a reminder in the case of smaller purchases.
If your business is a partnership, you can state, when faced witha buying decision, that all purchases are contingent upon theapproval of a third party. In reality, the third party can beyour partner, one of your department heads, or even one of yoursuppliers.
If your business is a sole proprietorship, you don't have much toworry about really, because as an individual you have three daysto think about your purchase, and then to nullify that purchaseif 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 wouldapply especially during a time of emergency. Anytime you commityourself and move ahead without completely investigating all theangles, and preparing yourself for all the contingencies that mayarise, you're skating on thin ice. Regardless of the costsinvolved, it always pays off in the long run to seek out theadvice of experienced professionals before embarking on a planthat could ruin you.
As an example, an experienced business consultant can fill you inon the 1244 stock advantages. Getting eligibility for the 1244stock category is a very simple process, but one with tremendousbenefits to your business.
The 1244 stock encourages investors to put equity capital intoyour business because in the event of a loss, amounts up to theentire sum of the investment can be written off in the currentyear. Without the "1244" classification, any losses would have tobe spread over several years, and this, of course, would greatlylessen the attractiveness of your company's stock. Any businessowner who has not filed the 1244 corporation has in effect cuthimself off from 90 percent of his prospective investors.
Particularly when sales are down, you must be "hard-nosed" withpeople trying to sell you luxuries for your business. Whenbusiness is booming, you undoubtedly will allow sales people toshow you new models of equipment or a new line of supplies; butwhen your business is down, skip the entertaining frills andconcentrate on the basics. Great care must be taken however, tomaintain courtesy and allow these sellers to consider you afriend and call back at another time.
Your company's books should reflect your way of thinking, andwhoever maintains them should generate information according toyour policies. Thus, you should hire an outside accountant oraccounting firm to figure your return on your investment, as wellas the turnover on your accounts receivable and inventory. Suchan audit or survey should focus in depth on any or every itemwithin the financial statement that merits special attention. inthis way, you'll probably uncover any potential financialproblems before they become readily apparent, and certainlybefore they could get out of hand.
Many small companies set up advisory boards of outsideprofessional people. These are sometimes known as power Circles,and once in place, the business always benefits, especially intimes of short operating capital. Such an advisory board or powercircle should include an attorney, a certified public accountant,civic club leaders, owners or managers of businesses similar toyours, and retired executives. Setting up such an advisory boardof directors is really quite easy, because most people you askwill be honored to serve.
Once your board is set up, you should meet once a month andpresent material for review. Each meeting should be a discussionof your business problems and an input from your advisorsrelative to possible solutions. These members of your board odadvisors should offer you advice as well as alternatives, andprovide you with objectivity. No formal decisions need to be madeeither at your board meeting, or as a result of them, but youshould be able to gain a great deal from the suggestions youhear.
You will find that most of your customers have the money to payat least some of what they owe you immediately. To keep themcurrent, and the number of accounts receivable in your files to aminimum, you should call them on the phone and ask for some kindof explanation why they're falling behind. if you develop such ahabit as part of your operating procedure, you'll find yourinvoices will magically be drawn to the front of their piles ofbills to pay. While maintaining a courteous attitude, don'thesitant, or too much of a "nice guy" when it comes to collectingmoney.
Something else that's a very good business practice, but whichfew business owners do is to methodically build a credit ratingwith their local banks. Particularly when you have a good cashflow, you should borrow $100 to $1,000 from your banks every 90days or so. Simply borrow the money, and place it in an interestbearing account, and then pay it all back at least a month or sobefore it's due. By doing this, you will increase the borrowingpower of your signature, and strengthen your ability to obtainneeded financing on short notice. This is a kind of businessleverage that will be of great value to you if or whenever yourcash position becomes less favorable.
By all means, join your industry's local and national tradeassociations. Most of these organizations have a wealth ofinformation available on everything from details on yourcompetitors to average industry sales figures, new products,services, and trends.
If you are given a membership certificate or wall plaque, youshould display these conspicuously on your office wall. Customerslike to see such "seals of approval" and feel additionalconfidence in your business when they see them.
Still another thing often overlooked: If at all possible, youshould have your spouse work in the business with you for atleast three or four weeks per year. The important thing is thatif for any reason you are not available to run the business, yourspouse will be familiar with certain people and situations aboutyour business. These people should include your attorney,accountant, any consultants or advisors, creditors and your majorsuppliers. The long-term advantages of having your spouse workfour weeks per year in your business with you will greatlyoutweigh the short-term inconvenience. Many couples shareresponsibility and time entirely, which is in most cases evenmore desirable.
Whenever you can, and as often as you need it, take advantage ofwhatever free business counseling is available. The SmallBusiness Administration published many excellent booklets,checklist and brochures on quite a large variety of businesses.these publications are available through the U.S.Governmentprinting office. Most local universities, and many privateorganizations hold seminars at minimal cost, and often withoutcharge. You should also take advantage of the services offered byyour bank and local library.
The important thing about running a small business is to know thedirection in which you're heading; to know on a day-to-day basisyour progress in that very direction; to be aware of what yourcompetitors are doing and to practice good money management atall times. All this will prepare you to recognize potentialproblems before they arise.
In order to survive with a small business, regardless of theeconomic climate, it is essential to surround yourself with smartpeople, and practice sound business management at all times.
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