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Although sometimes painful, economic downturns are temporary and provide an opportunity to assess your business's direction.
Gas prices are up, revenues are down, and money is tight. What’s a small business owner to do?
There are several important strategies you can use to see you through these difficult economic times. Here are five of them:
1. Protect your personal assets. All businesses hope to survive difficult economic times, but the reality is that some will undoubtedly fail. If yours does, what happens to you? It depends on how you’ve set up your business.
If your personal assets are currently vulnerable (e.g., you’re an independent contractor), consider changing your form of entity to an LLC or corporation, an entity that gives you personal liability protection.
Changing from a sole proprietorship to an LLC or corporation doesn't need to be expensive. You can even avoid legal fees and filing errors by using one of the more popular online filing services (for example, BizFilings.com).
2. Keep close watch on cash flow. The difference between surviving and going under when times are tough depends in large part on your cash flow. If you have the money to pay your bills when they come due, you can get by without damaging your credit rating and position yourself for future growth. To do this you need to carefully monitor your cash flow.
If you don’t have a line of credit in place, but your company is still sound, now is a good time to apply for one. Even though lending qualifications have tightened for business loans from major banks, fiscally sound businesses can still obtain this type of financing.
Having the line in place will help you if things sour or great opportunities happen, and you want to act quickly. A line of credit is sound borrowing—you only pay interest on the money you take from the line. For instance, if your company has a $20,000 line of credit and you use $5,000 to buy a new computer system, you’ll pay interest on $5,000.
3. Continue to market wisely. Slow times are no excuse for slacking off on marketing. You need to continually develop your pipeline of customers, so review your marketing plan now. It may be time to look at new marketing strategies that won’t strain your budget.
4. Trim overhead. If revenues are down, you can maintain profitability or minimize losses by cutting your expenses. No expenditure should be considered sacred.
Caution: Think long and hard before laying off employees. The economic downturn is temporary, and it will be very costly to find and train new employees needed when business is booming again. In fact, layoffs by other companies mean you have a greater pool of talented and experienced workers to consider for your openings now.
5. Look ahead. If business is slow, you may have time on your hands. Turn lemons into lemonade by spending this time doing strategic planning.