Youmay 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 businessalive during economic recessions. Anytime the cash flow ina business, large or small, starts to tighten up, the moneymanagement of that business has to be run as a “tight ship. “Some of the things you can and should do includeprotecting yourself from expenditures made on suddenimpulse. We’ve all bought merchandise or services wereally didn’t need simply because we were in the mood, orperhaps in response to the flamboyancy of the advertisingor the persuasiveness of the salesperson.
Then we sort of”wake up” a couple of days later and find that we’vecommitted hundreds of dollars of business funds for an itemor service that’s not essential to the success of our ownbusiness, when really pressing items had been waiting forthose dollars. If you are incorporated, you can eliminatethese “impulse purchases” by including in your by-laws aclause that states: “All purchasing decisions over (a certainamount) are contingent upon approval by the board ofdirectors. ” This will force you to consider any “impulsepurchases” of considerable cost, and may even be areminder in the case of smaller purchases. If your businessis a partnership, you can state, when faced with a buyingdecision, 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 ofyour suppliers.
If your business is a sole proprietorship, youdon’t have much to worry about really, because as anindividual you have three days to think about yourpurchase, and then to nullify that purchase if you think youdon’t really need it or can’t afford it. While you may thinkyou cannot afford it, be sure that you don’t “short-change”yourself on professional services. This would applyespecially during a time of emergency. Anytime you commityourself and move ahead without completely investigatingall the angles, and preparing yourself for all thecontingencies that may arise, you’re skating on thin ice. Regardless of the costs involved, it always pays off in thelong run to seek out the advice of experiencedprofessionals before embarking on a plan that could ruinyou.
As an example, an experienced business consultantcan fill you in on the 1244 stock advantages. Gettingeligibility for the 1244 stock category is a very simpleprocess, but one with tremendous benefits to yourbusiness. The 1244 status encourages investors to putequity capital into your business because in the event of aloss, amounts up to the entire sum of the investment can bewritten off in the current year. Without the “1244”classification, any losses would have to be spread overseveral years, and this, of course, would greatly lessen theattractiveness of your company’s stock. Any businessowner who has not filed the 1244 corporation has in effectcut 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 yourbusiness.
When business is booming, you undoubtedly willallow sales people to show you new models of equipmentor 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 courtesyand allow these sellers to consider you a friend and callback at another time. Your company’s books should reflectyour way of thinking, and whoever maintains them shouldgenerate information according to your policies. Thus, youshould hire an outside accountant or accounting firm tofigure your return on your investment, as well as theturnover on your accounts receivable and inventory. Suchan audit or survey should focus in depth on any or everyitem within your financial statement that merits specialattention. In this way, you’ll probably uncover any potentialfinancial problems before they become readily apparent,and certainly before they could get out of hand.
Many smallcompanies set up advisory boards of outside professionalpeople. These are sometimes known as Power Circles andonce in place, the business always benefits, especially intimes of short operating capital. Such an advisory board orpower circle should include an attorney, a certified publicaccountant, civic club leaders, owners or managers ofbusinesses similar to yours, and retired executives. Settingup 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 amonth and present material for review. Each meetingshould be a discussion of your business problems and aninput from your advisors relative to possible solutions. These members of your board of advisors should offer youadvice as well as alternatives, and provide you withobjectivity. No formal decisions need to be made either atyour board meeting, or as a result of them, but you shouldbe able to gain a great deal from the suggestions you hear. You will find that most of your customers have the moneyto pay at least some of what they owe you immediately.
Tokeep them current, and the number of accounts receivablein your files to a minimum, you should call them on thephone and ask for some kind of explanation why they’refalling behind. If you develop such a habit as part of youroperating procedure, you’ll find your invoices will magicallybe drawn to the front of their piles of bills to pay. Whilemaintaining a courteous attitude, don’t be hesitant, or toomuch of a “nice guy” when it comes to collecting money. Something else that’s a very good business practice, butwhich few business owners do is to methodically build acredit rating with their local banks. Particularly when youhave a good cash flow, you should borrow $100 to $1,000from your banks every 90 days or so. Simply borrow themoney, and place it in an interest bearing account, and thenpay it all back at least a month or so before it’s due.
Bydoing this, you will increase the borrowing power of yoursignature, and strengthen your ability to obtain neededfinancing on short notice. This is a kind of business leveragethat will be of great value to you if or whenever your cashposition becomes less favorable. By all means, join yourindustry’s local and national trade associations. Most ofthese organizations have a wealth of information availableon everything from details on your competitors to averageindustry sales figures, new products, services, and trends. Ifyou are given a membership certificate or wall plaque, youshould display these conspicuously on you office wall.
Customers like to see such “seals of approval” and feeladditional confidence 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 forat least three or four weeks per year. The important thing isthat if for any reason you are not available to run thebusiness, your spouse will be familiar with certain peopleand situations about your business. These people shouldinclude your attorney, accountant, any consultants oradvisors, creditors and your major suppliers. The long-termadvantages of having your spouse work four weeks peryear in your business with you will greatly outweigh theshort- term inconvenience. Many couples shareresponsibility and time entirely, which is in most cases evenmore desirable.
Whenever you can, and as often as youneed it, take advantage of whatever free businesscounseling is available. The Small Business Administrationpublished many excellent booklets, checklists andbrochures on quite a large variety of businesses. Thesepublications are available through the U. S. GovernmentPrinting Office. Most local universities, and many privateorganizations hold seminars at minimal cost, and oftenwithout charge.
You should also take advantage of theservices offered by your bank and local library. Theimportant thing about running a small business is to knowthe direction in which you’re heading; to know on aday-to-day basis your progress in that very direction; to beaware of what your competitors are doing and to practicegood money management at all times. All this will prepareyou to recognize potential problems before they arise. Inorder to survive with a small business, regardless of theeconomic climate, it is essential to surround yourself withsmart people, and practice sound business management atall times.