With market volatility, falling consumer confidence and increased taxes, fees and regulations, these are challenging times for small business owners.
The debt debate, which has raised the specter of tax increases, coupled with the stock market’s recent volatility, has ignited fears of another recession. Consumer confidence has also fallen. In times of shaky consumer confidence, people tend to eat out less, forego buying new things, and find other ways to save their money.
Small businesses have traditionally been the hardest hit during recessionary times, as growth stalls and their access to credit subsides. Since one of the reasons that entrepreneurs are not getting funding in this economy is the fact that their overall profits are down, the owners of startups and growing small companies will continue to find it difficult to raise capital. The result is often that innovation—the engine to America's economic success—will be hindered.
The good news is that small business owners can overcome the challenges of a recession. The following are some tried-and-true practices to do just that. These are suggestions that will also benefit businesses in the long term, when times get better.
1. Manage your cash flow well
One of the most important things a business owner should do is manage their cash flow closely. A well-run company can survive a recessionary period if it keeps tabs on its cost structure. If rents are going down in your area, try to negotiate a break in your own rent with your landlord. If you own a business where you schedule different levels of staff on a weekly basis, such as a restaurant, utilize only the number of people you need to run efficiently. Keep a balance between accounts payable and accounts receivable. I believe this to be a simple but overlooked practice that business owners should always engage in.
On the revenue side, be sure to submit your invoices on time. After all, if you are not in a hurry to be paid, people won’t be in a rush to pay you. Lastly, if you are in a cyclical or seasonal business, be sure to squirrel away enough cash during the good times to get your business through the lean periods.
2. Build a credit history
An easy first step is to open a business charge card. I have suggested to our startup clients cards such as the American Express Gold Card, because they offer a variety of products geared towards small business owners. Once you have a card, start using it, and then pay your bills promptly and in full. I have found this to be a quick and easy way to start building a business credit history.
The new Equifax Expedited Business Credit Builder helps small business owners to quickly create a reliable business credit profile with the credit ratings agency in just five business days. The product will then provide critical information that lenders and creditors can use to make financing decisions.
3. Leverage technology
Like most people, entrepreneurs tend to focus on the things they are good at doing and put off the things that they don’t like doing or are less confident in doing. Many small business owners are intimidated by technology, but it can make their lives easier and save them lots of time.
Skype makes video conference calls easy to do. It can cost less than a regular phone call, enables people in different locations and time zones to participate and saves lots of money in travel costs when the participants don’t have to be in the same room together.
4. Find qualified professional consultants
Don’t hire full-time employees if a consultant can do the job. You will likely pay them more per hour than a permanent worker, but you save on vacation pay, bonuses, health care and other costly benefits. There are lots of skilled people hungry for work in this economy. A good place to start is Elance. There are all kinds of professionals available, including IT professionals and accountants, who can help you run your businesses more efficiently. For those who need help with the business loan process, my company offers an Enterprise plan in which account managers can guide entrepreneurs through the process.
None of the tips I have presented here are very difficult or costly to implement, yet they can help entrepreneurs weather the storm of a recession and sail through easily when the seas are less rough.
OPEN Cardmember Ramit Arora is co-founder of Biz2Credit, which connects small business owners with 400 lenders, credit rating agencies and service providers via its safe online platform. Since 2007, Biz2Credit has secured $400 million in funding for small businesses and across the U.S.