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SURVIVAL TIPS FOR SMALL BUSINESSESYou may be in mail order, direct marketing, or you may be a local merchant with two hundred employees. Whatever the case, you've got to know how to keep your business alive during periods of economic recession or anytime the cash flow starts to tighten up. You have to properly manage your money to keep your business running like a welloiled, failureproof machine. Here are a few tips gathered from a lifetime of experience. Always protect 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, in response to a convincing advertisement, or due to the persuasiveness of a good salesperson. Later, we wake up and find that we've committed hundreds of dollars of operating capital to an item or service that is not in the least essential to the success of our business when other, more important items have been waiting for those dollars. If your business is incorporated, you can eliminate impulse purchases by including in your bylaws a clause stating that "All purchasing decisions over (a certain dollar 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 cause you to think twice when considering smaller purchases. If your business is a partnership, develop a policy declaring that all purchases above a certain level are contingent upon the approval of a majority of the partners in consultation with one another or an outside third party. You are more deeply protected if your business is a sole proprietorship. As an individual you have three days to consider a purchase and to nullify a contract if you should decide otherwise. While you may think you cannot afford it, be sure that you don+t shortchange yourself when considering the professional services of attorneys, accountants, or business consultants. This especially applies during times of expansion. Anytime you commit yourself and move ahead without completely investigating all the angles or preparing yourself for all the possible contingencies, 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 taking a major financial risk. For example, an experienced business consultant can fill you in on the advantages of filing for admission to the 1244 stock category. While a very simple process, such a move could produce tremendous benefits for your business. Without qualified advice, you may be missing out on the great tax advantages this category affords. The 1244 status encourages investors to place equity capital into your business. 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, greatly reducing the attractiveness of your company's stock. Any business owner who does not file for recognition as a 1244 corporation cuts himself off from a great percentage of prospective investors. When sales are slow, you must be particularly hardnosed when people try to sell you business luxuries. When business is booming, you undoubtedly will allow sales people to show you new models of equipment or a new line of supplies. However, if your business is down, skip the frills and concentrate on the basics. Great care must be taken, however, to remain courteous with your suppliers and allow them to feel free to call back at another time. Your company's books should reflect your strict standards, and whoever maintains them should generate information according to your policies. Thus, you should hire an outside accountant or accounting firm to calculate the 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 uncover any potential financial problems before they become readily apparent or get out of hand. Many small companies set up advisory boards composed of outside professionals. Sometimes known as Power Circles, once in place the business always benefits from the advice of these boards, especially in times of difficulty. Such an advisory council typically includes an attorney, a certified public accountant, civic club leaders, owners or managers of businesses similar to yours, and retired executives. Establishing 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 include the input from your advisors relative to possible solutions. The 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 or as a result of your meeting, but you should be able to gain a great deal from the suggestions you hear. If you are experiencing a lag in the payment of accounts receivable, take the necessary steps to insure prompt payment by your customers. You will find that most customers have the money to immediately pay at least a portion of what they owe you. To keep them current and to decrease the number of accounts receivable in your files, call each account on the phone and politely remind them that their account is overdue. If they are hesitant in responding, or if they continue to fall behind, call and ask for an explanation of why they're past due. While maintaining a courteous attitude, don't be hesitant or too gentle when it comes to collecting money. If you develop a polite but no nonsense approach to the collection of delinquent accounts as part of your operating procedure, you'll find customers will more quickly pay your invoices rather than risk having to explain their delay. Another very good business practice that few business owners pursue is to methodically build a credit rating with their local banks. During extended periods when you do experience a positive cash flow, borrow $1000 to $10,000 from your bank every 90 days or so. Simply borrow the money, place it in an interest bearing account, and then pay it all back at least a month or so before it's due. Such a practice will increase the borrowing power of your signature and strengthen your ability to obtain needed financing on short notice. This is the kind of business leverage that will be of great value to you if or whenever your cash position becomes less favorable. Definitely join your industry's local and national trade associations. Most of these organizations have a wealth of information available on everything: details on your competitors, average industry sales figures, new products, services, and marketing trends. If you are given a membership certificate or wall plaque, display it conspicuously on your office wall. Customers like to see such seals of approval and feel additional confidence in your business when they see them. Also, become a member of one or more civic groups in your community. Besides the good works that you will be helping perform in your city, you will be creating a myriad of friendships and business connections that will provide you an unlimited number of future opportunities. Another secret that is often overlooked: If at all possible, have your spouse work in the business with you for at least three or four weeks per year. If for any reason you are not available to run the business during a period of protracted illness or other emergency, your spouse will have already become familiar with the people and situations connected to your business. If your spouse is acquainted with your attorney, accountant, consultants, creditors, and your major suppliers, he/she will be able to fillin for you when you most need it. The longterm advantages of having your spouse work several weeks per year in your business will greatly outweigh the shortterm inconvenience to either one of you. As often as possible, take advantage of any free business counseling available to you. The Small Business Administration publishes many excellent booklets, checklists, and brochures on a large variety of businesses. These publications are available free or for a minimal charge through the U.S. Government Printing Office. Most local universities and many private organizations hold seminars at minimal cost or without charge. You should also take advantage of any services offered by your bank and local library. The most important aspect of running a small business is to know precisely the direction in which you're heading. Determine on a daytoday basis your progress toward your goals. Always be aware of what your competitors are doing, and practice careful money management at all times. All this will prepare you to recognize potential problems before they arise. Small business survival is based upon knowledge. Knowing in advance any possible
pitfalls along the way will better prepare you to meet the various challenges that face an
entrepreneur. Seeking the advice of knowledgeable counsel, whatever the field, will help
you develop a winning plan and become a success. Seize the opportunity. As the old saying
goes, "A journey of a thousand miles begins with a single step." Take that step
toward your future now! |
