By Dominic Ferrara
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 stock 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 the 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 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 od 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 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 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 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, checklist 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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