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Recession-Proofing Your Small Business

From Lynnea Bylund | Catalyst QuickBooks 
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The slowing economy and the reality that we're headed for a deep prolonged recession are worrisome subjects for small-business owners, with a big concern of keeping sales up when customers cut back on spending.

Carl R. George is the current chairman of the National CPA Financial Literacy Commission, a project of the American Institute of Certified Public Accountants. George is CEO of Clifton Gunderson LLP, a national CPA firm of over 2,000 people, with offices in 17 states and Washington, D.C.  Recently he suggested seven steps for recession-proofing your small business:

• Step 1: Focus on your balance sheet. Make sure you're managing your cash flow well. It's something you should be doing all the time, but it's even more critical in a recessionary environment, because there's just that much less cash floating around. While the going is still good, try to put cash aside to build a war chest.

• Step 2: Diversify and launch. Economic downturns have a benefit for business. A recession gives you the opportunity to step back, rethink and review all sectors of your operation. Consider launching a new product or service not currently offered in your market. Use the time to diversify your products, services or industries so you don't have too many eggs in one basket.

• Step 3: Start looking at your credit and debt. You should begin looking at increasing your line of credit -- in the event you need to use it. Negotiating with a bank from a position of power and good financial resources now is a lot easier to do than trying to negotiate in a recessionary environment.

• Step 4: Review your accounts receivable. When things are starting to turn down, you want to keep a sharp eye out for someone who is into you for quite a bit because if they go under and cash is tight, that could have a huge impact on your small business. Similarly, review your agreements with suppliers. Maybe you don't have to pay in 30 days; maybe you can pay in 45. Again, it's easier to negotiate in a good economy than in a downturn.

• Step 5: Review your company's discretionary spending items. Although small businesses are typically very lean, recession survivors often still manage to trim some fat. Think of all the discretionary items. Take whatever steps you can to reduce your debt. The less you have to pay out on a regular basis during an economic slowdown, the less painful it will be. Employ labor and time-saving technology to reduce business costs. More effective use of the Internet can save on travel, training, administration and operations costs.

• Step 6: Review your customers. Start reviewing how a recession will impact your customers. If your customer base is involved, for example, in the home-building industry, and home building is down, then you know their customers are not going to be demanding as much product, so you'd better get ready for that. One way to do that is to search out alternatives. Somebody's always making money, even in a recession, so if you can find out where those pockets are and if you have services you can provide to them, maybe you want to expand those services.  Now is also the time to take customer service to a new level. Get in touch and stay in touch with your active customers. Take nothing for granted. Make sure your pricing is competitive, your service is exceptional and your attitude reflects how much you value their business. Revisit dormant customers and see what you can do to bring them back into the fold. Sometimes it takes as little as just asking to restart a relationship. Other times it can take some imagination and insight, but resurrecting a past customer can still be easier and less expensive than finding and breaking in a new one. Ask your customers for referrals. While this is a good practice at any time, it is particularly important in a down economy.

• Step 7: Keep up marketing. Many companies cannot afford to stop marketing, regardless of economic conditions. New products are always certain revenue generators if marketed properly. Determine what sets your business apart from the competition and market it like crazy. Attend networking functions, spruce up your Web site, send out post cards, put out a new sign in front of your office.

New business, however, doesn't have to come from new customers. Many small-business owners can find that their best prospects for new revenue are their existing customers and clients -- established relationships mean an owner doesn't have to spend time, energy and money trying to make a good impression, and knowledge of customers' needs makes it easier to come up with new products or services they'll want to buy. Whether it involves prospecting for new business or working with a long-standing customer, success can turn on making a valid case that your product or service will benefit the buyer, even if the economic times are uncertain.

LB
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