Many small business owners are sitting at their desks right now wondering if the wild ride they had in 2008 will be worse in 2009. I don’t have a crystal ball, so my guess isn’t better than anyone else’s. But I do have some observations that businesses should consider for the beginning of the year. These observations come from 15 years of financing small business owners.
First, the biggest overall weakness I see in small businesses is their lack of quality financial books. If you are one of these businesses, make it a priority to get your accounting bookkeeping in good shape and the follow my next suggestion.
Once you have your accounting records in order, you need to learn how to use them to manage your company. I apologize if you are already a proficient user of your company’s financials, but I find it is the exception rather than the rule. Most business owners simply don’t know how to use their financial statements to manage there business. In good years, perhaps this has been an unnecessary exercise, but I can assure you if the economy gets worse, it may mean the difference between life and death for your business.
If you don’t currently use a cash-flow forecast, you should consider using one today. I have designed a good cash-flow forecast that is free for Allbusiness.com readers. Feel free to download it and modify it to suit your company’s needs.
Many of your customers are going to have financial troubles during the year. Now is the time to review credit limits and payment history. Management needs to focus more efforts on making good credit decisions and collecting A/R in 2009 than it has in prior years.
Concentration of credit/sales will be very important to watch during the next year. Given today’s economic times, I would say a 20 percent concentration of sales/outstanding credit is too high unless the customer is the
Many businesses are indicating that decreased sales are their biggest problem. This is a hard one to fix, but it may mean that small business owners are going to have to step in and be the company’s best salespeople. Forming strategic partnerships may be an option, as is using others to distribute your products.
Continue to figure out creative ways to decrease costs without harming sales. Think outside the box. Consider selling assets that aren’t being used. Consider selling obsolete inventory through liquidators.
Pare down your personal lifestyle if you haven’t already. I spoke with a small business owner yesterday who was taking $15,000 out of his company every month for his compensation. He is spending pretty close to everything he is taking out. He may be okay doing that, but I suggested he decrease his salary to $8,000 and put the rest in the company’s cash accounts. Having available cash may be the best way to protect your company in 2009.
2009 will be a year of winners and more losers. If you heed my advice, your company will have a much better chance of not only surviving, but winning in the tough year to come.