Jim is a small business owner who’s been watching the economy evaporate in front of his eyes. Stressed is a mild term to explain how he feels. With his wife staying at home to raise their young children, 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 ten years, Jim never felt he needed a consultant. Until now. Ken graciously offered Jim two hours of his time gratis to share the “Nine Survival Tactics for a Tough Economy.”
1. 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 how the money flows.
2. Trim the fat: Many small businesses experienced a tremendous run over the past ten years. Since they had good cash flow coming in the door, they allowed fat to accumulate in the cash flow 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. It’s critical that you get your cash outflows to a manageable level as soon as possible.
3. Look into the future: When clients and projects were rolling, most entrepreneurs believed that new business would materialize whenever things temporarily slowed down. This may or may not be the case today. 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 expenditures and find additional income. Do this exercise each month, always looking at least three months out.
4. Get back to basics: 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.
5. 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 flow of the business. You’ll come out stronger in the end.
6. 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.
7. 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.
8. Who lays the golden eggs? Remember who’s paying your bills right now—your customers. Although you want new business, it’s imperative that you keep your existing business. Your competition is desperate, and they may try anything to get your customers. Call your clients yourself, ask them how they’re doing and whether there’s anything you can do to help them. Ask if they’re happy with your product or service and what you can do to provide them with an even better experience.
9. Stress: The difference between which businesses get through this slowdown and which ones don’t has a lot to do with the decisions each one makes. To make good decisions, 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 ten-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 business and relax is good.
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.
Many business owners are in the same predicament you are. The ones who survive will do so because they’ll take the steps above as soon as possible and get their ship righted. Set aside a full day within the next week to work on the items above, without interruptions or excuses.
Entrepreneurs have a sink-or-swim, do-or-die mentality. Focus on the right things, and you’ll get through this.
THOMAS E. HOUCK, CPA, CFP®, is a speaker, author and consultant
whose program, “Your CFO Advantage™” helps business owners
grow their businesses, reduce their taxes and lower their stress levels.
He is the author of The Top 10 Mistakes Business Owners Make—
and How to Fix Them.