There are time tested things that every business owner must do when the economy is tough. This situation is harder since in our history we have never had the government force large parts of the economy to shut down. We also have never had government give so much help to small businesses.
.
In this video I give you time tested things that you, as the business owner, must do to survive the shutdown and the coming recession.
Once the COVID19 shutdowns are over and all businesses are open again we will be back into an economic situation that long-term business owners have been in before. The financial collapse of 2008 was one of the worst in the last 50 years. We survived that and came out strong. I have no doubt that American entrepreneurs will survive COVID19 also. My experience is that those that do survive will come out stronger than they were before.
In the rest of this article I will concentrate on the steps you, as the business owner, must do in order to survive and thrive during this economic downturn.
One mistake almost all small business owners make is waiting too long to decide that they have a problem! This further complicates their recovery because the longer you take to move into “survival mode” the more likely it is that you will need to take very drastic measures.
Every business owner must have accurate, timely accounting records that will provide them with the reports that they need to review constantly in order to identify early warning signs of trouble.
When should a business owner go into “survival mode”? For most it is obvious—they can’t collect enough to pay mounting bills. But for many, it sneaks up on them. Here are the common signs that your business is in trouble:
- More cash is going out than what is coming in on a weekly basis.
- Your bank account balances fall below your normal cash balance for two straight months.
- Future sales projections have been reduced dramatically.
- Your 941 payroll tax deposits cannot be paid on time.
The rest of this article goes into detail on what steps you should take once you find yourself in survival mode.
First, the business owner must “adjust their attitude”. The business owner’s ability to adapt to their current situation is the number one predictor of whether or not the company will survive. A business owner must
- Stop panicking! Take a deep breath, and start planning.
- The business owner must understand that this recession is real and that business failure will severely affect their family, employees, and creditors.
- Eliminate the blame game, and accept the responsibility. Remember, it’s always your fault. So just fix it!
- Forget the past. Fixating on your mistakes will just enable you. (I am often guilty of this one. Thank God my wife is around to knock me out of it!)
- Go into business overdrive. When you are at your place of business, focus on essential tasks only. Don’t answer non-business email, don’t waste time on social networks, and don’t make personal calls.
- Understand that this will be hard and that “survival mode” will take extra time and energy.
- Always visualize success. Get your goals down on paper and keep them where you can see them to serve as a motivating factor and a reminder to stay the course.
Second, a business owner must create a detailed cash budget.
You must know that you will need $10,000 for Friday’s payroll at least a week ahead of time—not when you are writing the paychecks! A cash budget gives you the early warning signal you need to react.
Third, a business owner must do is cut costs.
- Carefully review every expense. Eliminate or reduce those that don’t have an effect on your customers’ experience or help you provide a better product. Be honest and brutal. It’s sink-or-swim time—don’t think of it as being cheap, think of it as being prudent.
- Review labor costs. Employees are often the largest cost under the owner’s control. Cut non-essential employees, cut hours, hire temps as needed, initiate temporary unpaid furloughs. Yes, this is tough for everyone. But if you don’t survive, everyone loses. You can always rehire and increase hours once you are back on your feet.
- Use the barter system. Cash is the lifeblood of your business, so guard it closely.
- Negotiate for price reductions at the time of purchase. Simply ask, “Is this the best price you can give me?” It is survival time: You sometimes have to put your pride aside and do what is in your wallet’s best interest.
- Delay purchasing equipment and supplies as long as possible.
- Don’t carry excess inventory. Have a sale to reduce inventory and increase cash reserves.
- Renegotiate credit terms with your vendors. Ask for price cuts, extended payment terms, and long-term funding.
- Pay invoices with a credit card, and then pay the credit card in full before the due date. This little trick can buy you an extra thirty days at no cost to you.
- Negotiate a reduction in what you owe your vendors. If you have the cash, agree to pay 60% to 80% now in exchange for a write-off. Caution: Don’t do this with essential vendors.
Fourth, speed up customer cash collections.
Failure to collect receivables on a timely basis is the number one reason behind cash flow problems. It must be one of the business owner’s main priorities. So:
- Call, call and call again! In tough times your customers are paying the bills they have to in order to stay afloat, and then they are paying the squeaky wheel. Don’t be proud—squeak loudly!
- Get deposits at the time of the order. This one step is often all that you might need in order to eliminate your cash problem.
- Send out the invoice ASAP. Request payment as soon as the job is completed or the product is delivered.
- Research and resolve any client questions or complaints. Often the reason an invoice isn’t paid is because the customer has a complaint or doesn’t understand the bill. If you don’t take care of their concern, they will not pay!
Fifth, commit time and energy to your sales and marketing program. Sales are what drive any business. So why not try to give them a boost? Once you have cut costs and increased customer cash collections, the next step out of “survival mode” is to increase your revenue. The business owner must make a firm commitment to enhancing their sales & marketing program. This means you must:
- Educate yourself. Buy and read “Guerrilla Marketing” by Jay Conrad Levinson.
- Write up a marketing and sales plan.
- Commit at least one hour a day to sales to current customers. These are the easiest people to sell to! They already know and trust you, and their past purchases have shown that they need your product or service.
- Commit at least one hour a day to marketing to new customers. Create a plan designed to get prospects to contact you. Then work on a plan to get these prospects through the three steps to final sales.
Before someone buys from you they must:
- Know about you and your products or services.
- Be convinced that your product or service will solve their needs or wants.
- Trust that you and your company can deliver what you have promised.
- Research new products or services that you can sell to your current customer base.
Finally, look for a source of outside funds to buy time until your marketing and sales efforts pay off.
The following list should help you find the funds needed:
- Get cash advances from any open lines of credit or credit cards.
- Apply for new loans. (This assumes that your financials are still strong and that you caught the problem early.) The time to get a line of credit is before you need it.
- Factor your receivables. This is costly, but it can quickly get you the cash you need to survive.
- Ask your customers for prepayments. If you have recurring sales, offer a discount for prepayments.
- Borrow from your or your spouse’s 401K. When you pay it back, the interest is being paid into your retirement account.
- Get a second loan on your home.
- Sell off excess personal and business property and equipment. Sell the vacation home, extra car, boat, RV, or motorbike you haven’t used in months.
- Get loans from friends and family.
I know these suggestions sound extreme, but you have a responsibility to everyone who relies on your business to do everything possible to make it survive. You can’t save something that no longer exists.
One final thought—the items discussed above would work well even in a business that is not struggling. The best thing is to never get into “survival mode!” I know that is easier said than done. Applying the above now will lead to a highly successful business that you can enjoy and be proud of.