In case you haven’t read one of my posts in Main Street Financing Challenges, I am an allbusiness.com business blogger who has over 15 years of banking and finance expertise and has made some of the toughest loans imaginable to small businesses.
Recently I had the honor to begin recording podcasts for Allbusiness.com. My first podcast, “What Financial and Accounting Changes Can I Make to Weather This Downturn?” briefly touched on the topic of steps a business owner should immediately take to give their business the maximum chances of doing well (or at least surviving this troubling time). Below is an elaboration on the tips that we disucssed on the air.
Here is a list of what I am advising my clients to do who need to “hunker down” in today’s economy:
- Make a plan. Involve all management and key employees. Sit down and think through what the impending recession may mean to your business. Write down your plan. It doesn’t have to be fancy and will be a working document while you are working the plan. This plan should be updated as circumstances chance and as your business changes because you are being proactive about dealing with the crisis. The plan should include subcategories like: managing cash flow, decreasing costs, increasing sales, minimizing shrinkage, and keeping inventory lean and mean.
- If you don’t already have them, have key management meetings once a week. I prefer early Monday morning or late Friday afternoon. Review weekly sales goals, sales promotions, staffing requirements, and your weekly cash flow forecast (see # 3). After a few weeks, this meeting should be no longer than 30-45 minutes long unless there is something special that requires it to be longer.
- Develop a weekly cash flow forecast to help you better manage cash, which is your most critical resource during tough times. I like to joke with my clients that every owner should sleep with their cash flow forecast under their pillows at night, however, this document which should constantly change as sales change and expenses are accrued, will give the business owner a feeling of being in control. It takes a few weeks for using the cash flow forecast to become second nature, but I find that once a user is hooked, you can’t take it away from them as a planning tool. You may download a free Cash Flow Forecasting tool I designed for Excel. There are many of “for pay programs” but honestly I think the free one I have designed is better.
- Be prepared for the downturn to last for at least 2 years. This is a sobering thought but one which will put the need for proactive measures and changes in business practices.
- Be concerned about the creditworthiness of your customers. As the recession deepens customers who were previously excellent credit risks may not be so good today. Monitor your accounts receivable collections carefully and don’t let a customer get very far behind before you put them on COD. Look at your sales history by customer and if a single customer represents more than 20% of your annual sales, try to find ways of reducing that concentration without loosing the customer.
- If your business sells primarily to consumers, consider ways to find new commercial customers. Certainly not all businesses can do this, but now is the time to think outside the box and create new business lines that don’t require additional capital.
If you haven’t regularly read my blog, Main Street Financing Challenges, consider doing so. Three times per week I bring real examples and real answers to your small business problems.
You may contact Sam directly at: firstname.lastname@example.org
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.