I have operated my own business now for almost 33 years. This is my third recession and although I do not claim to be any kind of business expert I have survived and have learned from my mistakes.(there have been many). I felt I should write this article to perhaps provide some insight to other small business people to help them avoid some of the mistakes I have made and to provide some hope and encouragement at a time when the whole world may seem to be against you. Some important points I want to emphasize.
1. An economic downturn is not your fault . Some of the best business people in the world can not survive in tough economic times. So do not blame yourself. Do not let hindsight torture you . By this I mean by thinking the if only. If only I hadn’t expanded, if only I hadn’t hired more people , if only I hadn’t bought this or that etc . Recessions are very seldom foreseen and nobody has a crystal ball. You are where you are at and it is what you do from here on that will determine your survival .
2. The team you have surrounded yourself with can move very quickly from being helpful and supportive to being a direct cause of your inability to survive . This includes your lawyer , accountant , banker , insurance agent and employees. Why do I say this ? Your lawyer is concerned with doing what is lawful not moral . You are concerned with surviving. Your accountant is more concerned about proper tax returns. In a recession the tax man can wait. Your banker is an employee more concerned about his job than your business survival. Your Insurance agent is more concerned about the company he/she represents and collecting the premium you owe than your business survival . Your employees are concerned about their jobs and pay cheques and you can be sure your competitors have already approached your best and you know you can’t depend on your worst.
3. Accept the fact you are on your own. Expect sympathy from no one . Complain to no one. Cut all unnecessary expense and overhead . Analyze your labour and decide at what point you will have to consider reducing your labour costs and who will be laid off first .Then start reducing your dependence on those individuals in an effort to be prepared for the worst case scenario.
4. If you are working with a line of credit (short term credit) replace it with long term credit that can’t be called and access additional credit to have available if needed. If long term financing is not an option do not depend on one lender. Open up a second operating account and when possible deposit some money to build up some cash should your existing lender shut you off . (take away your line of credit) If your lender calls your loan never continue to deposit money in that bank . Any money deposited will be applied to your operating loan and cheques will be sent back NSF. Managing your cash flow will be crucial and switching banks will mean all automatic withdrawals (payments) will not be honoured . That is okay. Contact them and advise you have switched banks and will send them a cheque. It is important to protect your credit score and there are some things you should know here about managing your cash flow and protecting your credit. As small business people most of our credit is personal or consumer credit. As of this article (in Canada) Business loans and mortgages do not show on a credit check. Just personal credit (credit cards, car loans, utilities etc.) In a recession managing your cash flow means no automatic withdrawals and you pay those bills first that protects your credit score. A wise business person once said to me.” The number one rule in business is never let anyone else spend your money. If you have a book keeper implement a policy where by all checks have to be cleared by you and all purchases have to be accompanied by a purchase order.
This is just the tip of the iceberg in recession proofing your business and covers the basic minimum requirements to survival based on my years in business. Last but not least are receivables. Move immediately towards a no credit policy a recession is not a time to be carrying receivables.
There is much more I could write about protecting your assets and renegotiating your loans but that is another article. I apologise if I’ve offended any of the professionals mentioned but tough times call for tough statements based on my own experience. That does not mean I do not respect and appreciate many of the professionals who have helped me over the years.
Larry D Matthews
Jan 16th 2009