Staying Afloat

There’s no doubt that small businesses are feeling the recession pinch. Fortunately, with these clever business moves, you can survive the economic downturn.

Care for your customers. “In tough times, there are three things you have to look at: customers, cash and costs,” says Cliff Ennico, small-business attorney and author of Small Business Survival Guide. First up: Customers. If your usual clientele is strapped for cash, what additional services can you offer that they’ll pay for anyhow?

If possible, Ennico recommends marketing any “dirty job” you can offer—the sort of thing nobody wants to do but that has to be done. As a consumer, he says, “I’m mowing my lawn myself rather than hiring someone. But I’m afraid of heights so when it comes to gutters, I’m not doing that myself. Or cleaning out my septic tank—I will gladly pay someone to do that.”

Even companies that might not normally work “dirty” can offer services to assist customers with undesirable tasks. If you own a furniture store, why not haul away customers’ old sofa beds when you deliver their new couches? Many people would jump at the chance to have someone else lift heavy furnishings for them.

Monitor cashflow. “In tough times, you’re not worried as much about profits as making sure there is enough money to pay your bills each month,” Ennico says. That’s why staying on top of accounts receivable is so vital. If you notice clients are slowing down payments, talk to them right away. “If you catch the problem, you can work something out with customers to help them,” he adds.

Slash costs. At this point, says Jay Goltz, author of The Street-Smart Entrepreneur, you should be able to project an income statement for the year. “Then do some difficult analysis of what you can cut and what you can’t in order to minimize losses,” he advises.

“Cut back anything that is not an essential purchase and look to trim fat wherever possible—even if it means cutting back your own compensation,” Ennico says. “Do whatever you can to keep your costs to a minimum. Don’t be afraid to be ruthless.”

There is the possibility, of course, that you’ll have to cut your workforce. “The number one responsibility of the boss is not to the employees, it’s to keeping the business in business,” says Goltz, who owns Artists Frame Service, Chicago Art Source and Jayson Home & Garden in Chicago.

His company has been forced to lay off some employees and cut back hours for others. In addition, Goltz discontinued some luxuries, such as entertainment budgets, suspended matches to the company 401(k) plan and increased the percentage that employees pay for health insurance coverage. It may not be pleasant, but in tight times, that’s the nature of the beast.

At the same time, Ennico cautions against getting too slash-happy. “If you cut costs too much, your quality suffers,” he says. “By all means, trim the fat, but make sure you can perform so customers aren’t bad-mouthing you.”

Offer incentives. If you’re cash-strapped and looking for a way to get customers to pay sooner, be ready to offer them something in return. For Ennico, that means going beyond the usual 2 percent discount for net-30. “I’m talking more like a 10 percent discount,” he says. “These days, getting cash quicker means making a real economic concession.”

Know whom to pay first. If it comes down to choosing who gets paid right away and who has to wait, Ennico suggests grouping your bills into three categories.

• Tier One. These are the people who must be paid in order for your business to survive, such as your accountant or a vendor who supplies the key ingredient for the product you offer.
• Tier Two. People who are not essential to business operations but who will become a major nuisance if they aren’t paid right away—such as suppliers who threaten lawsuits—belong in tier two. “In difficult times, you can’t afford even a single collection lawsuit,” Ennico stresses. “People who are threatening to take your business down should be dealt with immediately or as soon as possible.”
• Tier Three. Everybody else goes here. If things get tight, they can wait.

Look at pricing. “Many people are tempted to cut prices during difficult times, but that may not actually be the smart thing to do,” Ennico says. Instead, he suggests focusing on a narrower band of customers who can afford your services right now. Perhaps they’re even willing to shell out a bit more.

Pay with credit cards. Companies may accept credit card payments even if they don’t advertise that fact, Goltz says. It doesn’t hurt to ask, because paying with plastic buys you 30 to 45 days, depending on the billing cycle. Goltz recommends looking for a credit card with a program that offers rebates for business necessities such as gas and travel so you’re earning rewards when you charge. Just remember to pay your card off right away so you don’t put yourself even further in debt.

Negotiate. A recent Small Business Research Board survey of more than 1,000 small businesses reports that 18 percent are renegotiating price agreements as a result of their current financial situations.

If you think you may need a break in the near future, Ennico stresses the importance of approaching vendors now. “Don’t wait until you don’t have any more money. It’s better to approach them and say, ‘It looks like I’m going to hit a dry patch, I may need your help.’” Giving as much notice as possible ensures you have time to work out problems.

Should you approach a vendor about negotiating bills, tell the vendor what you can do. Ennico says letting them know what you need—the more specific, the better—makes it easier to work out an arrangement that benefits both of you.

Check out Creative Cost-Cutting for more ways to save.

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