What measures should small businesses take to weather this economic downturn?

Chad Moutray, Chief Economist for the U.S. Small Business Administration posted this question on Linkedin.com. First and foremost, small business, which accounts for 80% of the US economic base, should not be discouraged! But, you do need to be a savvy business person. See my recommendations below:

As a small business owner that employs 10 people and a business consultant, there are a few key steps any small business person should take to weather this economic storm:

1. Cut the fat. This is the hardest thing for a small business person to do because close relationships with vendors and employees make this very personal. However, the health of the business depends upon keeping operations as lean as possible. The one area that should not be cut is marketing. However, scrutinize where your marketing budget is being spent. Are you really getting any response from that yellow pages advertisement? Figure out where you are getting return on your dollars spent and focus your spending on these marketing channels.

2. Focus your time and energy. Are you really creating benefit by attending Chamber and service club events? This is the time when you need to focus your energy in events that your potential clients attend. Get back to the basics of your business and mind your schedule.

3. Take a good look at your financial situation and make necessary changes. This is usually the last activity a small businessperson wants to spend time on and would much rather spend time on getting their product or service out the door. However, these three areas are crucial to your financial health:
a. Understand your profit margin on every unit produced by your company, whether it is by hour of service or each widget manufactured or assembled. This is the time to get the exact truth of your profit margin

b. Analyze your P&L statements weekly if not daily and make necessary adjustments. For example, we have looked at whether it is more cost efficient for our company to reimburse at the Federal mileage rate or allow employees to fill up their gas tanks. Be creative and make sure the business is gaining an advantage by what ever you chose to do.

c. Pay down debt if you are able and negotiate with your creditors to reduce interest rates and payment terms. Everyone in business knows its tight right now. Cash flow is one of the hardest issues for a small business. The credit crunch makes short term borrowing even harder to accomplish. If small business owners and vendors can work out suitable terms among themselves, it will help ease the impact of bank’s inability to serve your needs.

4. Visit your community banks and see if there are programs for financing for which you qualify. Even though we are in a credit crunch, and truthfully, most small businesses are not eligible for loan programs anyway, don’t give up on keeping a tight connection with your banker. Look for a conservative institution! Our problems started with lending institutions playing fast and loose with their assets. The conservative institutions are weathering this storm. Stick with them.

Above all, don't let the media drag you into a depression! They make their money on sensationalism. Stay focused on your core business value proposition. If you need assistance in determining what that is, get in touch with me and I'll help you figure it out.