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 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