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Survival Tips for Small Businesses
SURVIVAL TIPS FOR SMALL BUSINESSES
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"
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" yourself 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 increase 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 services 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.
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