You may be in Mail Order, Direct Mail, or 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 company, 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 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 things had been waiting for those dollars.
If you are incorporated, you can eliminate these “impulse purchase 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 because, as an individual, you have three days to think about your purchase and then nullify that purchase if you believe you donՀt really need it or can’t afford it.
While you may think you cannot afford it, be sure you don’t “short-change” yourself on professional services. This would apply especially during a time of emergency. Anytime you commit and move ahead without thoroughly investigating all the angles and preparing yourself for all the contingencies that may arise, you’re skating on thin ice. ÿRegardless of the costs involved, it always pays off, in the long run to seek the advice of experienced professionals before embarking on a plan that could ruin you.
For example, an experienced business consultant can fill you in on the 1244 stock advantages. Getting eligibility for the 1244 stock category is a straightforward 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 would significantly lessen the attractiveness of your company’s stock. Any business owner who has not filed the 1244 corporation has cut himself off from 90 percent of his prospective investors.
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 salespeople 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. However, great care must be taken 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 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.
- Retired executives.
Setting up such an advisory board of directors is relatively 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 discuss your business problems and input from your advisors relative to possible solutions. These members of your board of advisors should offer you advice and alternatives and provide you with objectivity. No formal decisions need to be made either at your board meeting or as a result, 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 immediately pay at least some of what they owe you. 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. Develop such a habit as part of your operating procedure. You’ll find your invoices magically 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 collecting money.
Something else thatՀs a perfect 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 $1,0OO from your banks every 90 days. Simply borrow the money, place it in an interest-bearing account, and then pay it back at least a month before it is 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 business leverage 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 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 you are not available to run the company for any reason, your spouse will be familiar with certain people and situations in your business. These people should include your attorney, accountant, consultants or advisors, creditors, and major suppliers. The long-term advantages of having your spouse work four weeks per year in your business with you will significantly outweigh the short-term inconvenience. Many couples share responsibility and time entirely, which is, in most cases, even more desirable.
Take advantage of whatever free business counseling is available whenever you can and as often as you need it. The Small Business Administration published many excellent booklets, checklists, and brochures on many businesses. These publications are available through the U.S. Government Printing Office. Most local universities and private organizations hold seminars at minimal cost and often without charge. You should also take advantage of the services offered by your bank and the local library.
The important thing about running a small business is to know the direction in which you are heading, to understand on a day-to-day basis your progress in that 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.
To survive with a small business, regardless of the economic climate, it is essential to surround yourself with intelligent people and practice sound business management at all times.