Even though the economy is sputtering, the last thing small-business owners should do is panic. “You can actually take the opportunity of a downturn, when you’re not as busy, and re-strategize your business looking for new opportunities.” says Harry DeWolf, Portland district director of the U.S. Small Business Administration. Here are his top five tips small businesses should follow when economic times get tough.
1. Don’t lose track of cash flow. Cash is king — especially in a down economy. Income statements and balance sheets are fine, but they are telling you what happened in the past, not the future. Use a cash-flow report to project your cash flows at least three months in advance.
2. Eliminate nonessential expenses as much as possible. Ask yourself: Is that activity necessary? Will this activity create profit? If not, don’t do it. Also consider cutting personal spending. Simple reductions can make a difference.
3. Don’t build up inventory. Don’t get bogged down with excess merchandise and inventories tying up your cash. Convert your overstocked inventory into cash by using sales and promotions and consider selling items through other channels, such as the Internet.
4. Don’t take on new debt. Think long and hard about taking on more debt, and don’t be in a big hurry to pay off debt early. Instead, focus on building cash reserves.
5. Don’t let accounts receivable get too big or too old. Get aggressive with collections. When business is good, companies tend to become lazy about collecting on receivables. Being tough with customers may be unpleasant, but it’s an important safeguard against the effects of a prolonged economic slowdown.
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