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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