equipment such as computers, photo copiers, and furniture in 2008, up from $125,000 in 2007.
Small-business owners are taking a double hit since they have personal and professional bills to worry about. “I’m paying two gas bills, two telephone bills, rent, and a mortgage,” says Allford-Thompson. Unfortunately, if clients become scarce and cash flow is low, it is the business owner’s personal obligations that often go unmet first, says Landis. “The first one that doesn’t get paid in a cutback of any cash situation is the owner,” Allford-Thompson adds. “We’re the last to get paid and the first to cut our pay.”
Surviving a Recession
Experts say small-business owners should take matters into their own hands before a recession is officially declared, if they want to withstand economic pressure:
Get finances in order. “The days of easy credit are gone,” says Landis. “Take the time to make sure your financial statements are good, strong, and clean. Make sure they show your cash flow. If you get the opportunity to talk with a funding source, you need statements that answer questions not raise questions.” Boston suggests that business owners stockpile enough cash to cover four to six months of expenses. To determine that amount, William R. Patterson, CEO of The Baron Solution Group, a business consulting firm in Washington, D.C., suggests that business owners look at their financial statements for the last few years. Also factor in new risks, such as inflation and higher fuel and commodity costs.
Analyze profit streams. “One mistake many business owners make is, when a recession hits, they’ll lay off people because the staff is the easiest thing to cut,” says Patterson. Instead, business owners should figure out what customers are most profitable and come up with new products and services to sell to them, he suggests. For example, a large-scale caterer might offer small meal delivery services to her clientele or someone who sells office equipment might begin to offer service contracts for an extra charge. Also, figuring out what areas contribute the least to the bottom line lets business owners know where to cut costs first.
Ramp up marketing. During a recession, there is often a drop-off in sales. “You need to find additional ways to bring in new customers,” Patterson says. For example, after noticing a slight sales dip, Allford-Thompson expanded her marketing efforts: “We go neighborhood to neighborhood, door to door, and pass out fliers and give out samples.” The move worked, she says. Not only did she see more customers, but those who brought in the fliers offering free samples also purchased additional items.
Cross-train employees. If tough times persist, business owners may be forced to lay off staff. Before that happens, business owners should train employees to handle multiple tasks across the organization. For example, a salesperson could be taught some of the company’s marketing procedures and vice-versa. The use of independent contractors for short-term projects could reduce the cost of benefits, Patterson says. Likewise, outsourcing some functions such as accounting or information technology could be