Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Tips for Small Business Survival During the Recession

December 23, 2008

By Jaime Noyola, Director of Lending, PeopleFund

Undoubtedly the National Bureau of Economic Research’s announcement that the U.S. is and has been in a recession since December 2007

Jaime Noyola

Jaime Noyola

comes as no surprise to most American’s. As Washington and Wall Street attempt to sort out a solution, there are many ways individual business can protect themselves from the effects of the down economy. Successful businesses will be those who can most quickly adapt to changes in the market and take advantage of the opportunities presented while minimizing operational risk. The following are some recommendations we are making to our clients.

1. Watch your accounts receivable. As credit tightens, many businesses are finding they no longer have access to the funding necessary. This can quickly lead to slow payment. Remember the squeaky wheel gets the grease. Stay vigilant with your clients and monitor your agings daily.

2. Evaluate your clients. It is more important now that ever before to evaluate each of your clients, existing and prospective. Many historically strong companies are now unable to pay their bills. Do not be one of the vendors left holding the bag. Just because a prospect has a good reputation or a client has an excellent repayment history, don’t assume that this will continue. Often times despite their best efforts, they maybe unable to make good on their commitments. Remember that when extending terms to clients you are not only following an industry practice, but you are extending credit. Evaluate it as such. Sales income does not pay expenses, cash received does.

3. Cash is king. During economic downturns, cash is the most important asset on your balance sheet. It allows companies to weather the storm. While companies need not hoard cash, this is a good time to evaluate expenses and purchases. It maybe prudent to delay large ticket items in order to maintain a larger reserve.

4. Don’t let assets become liabilities. In banking there is a phrase used often, “asset rich but cash poor”. While assets are better than liabilities, unutilized assets (those not making money) requiring significant supportive cash flow can quickly hinder more than help. Businesses must be cognizant of the true cost of holding an asset (maintenance, insurance, taxes, etc.) and determine if it is outweighed by the future benefits. Assets sold can always be repurchased when business increases, cash used to support unproductive assets are gone forever.

5. Keep creditors informed. If you should begin to see a negative impact on your finances, keep your creditors in the loop. DO NOT DISSAPPEAR. Unreturned calls are a red flag for creditors. All creditors are aware of the situation and most are willing to work with you. This is one area where it costs nothing to gain large dividends.

6. Indecision becomes decision. Indecision quickly leads to paralysis which can leave a company ill prepared to deal with the changing market. Rarely is staying the course the best plan of action in this type of economy. While making changes can be scary, idly awaiting the economy to get better is effectively a decision to do nothing. Agility is key. Obtain the best information available and continue to make decisions. Be ready to change directions at a moment’s notice.

The unknown is often scary. For many, this is the first dealing with a prolonged recession. It is important to remain positive and know that this period is just a part of a cycle. Inevitably the economy will expand again. Successful businesses will be those that change with the tide and survive until the next period of prosperity.

PeopleFund is a community development financial institution that specializes in lending to small, minority, and women-owned businesses in Austin and central Texas, especially those located in low to moderate income communities or  that will create jobs.  For more information on PeopleFund go to www.peoplefund.org.

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