In Tough Times, Focus on the Basics

Richard W. Bennet III
Co-CEO, CCA
Global Partners
www.ccaglobalpartners.com

I work with more than 2,000 independentsmall business owners. They are fundamentallyflexible and adapt well to changing conditions on the ground, often much better than big business. History shows that many weather economic storms, only to fail during economic recovery because of cash demands. With today’s liquidity crisis, this historic pattern is likely to be much worse than in the past. Small business owners by their nature love what they do, produce, and serve. They are, however, much less likely to revel in the joys of best business practices.

The core of the small businessperson’s ethos is helping oneself and not depending on handouts. To that end, the cure for his or her dilemma starts at home, and the steps needed to revive the health of a business are surprisingly consistent. Below are some important tips for small business owners to help themselves.

Get the reporting right. Many small businesspeople love working on what they produce or how they serve, rather than on finances and bookkeeping. That is a mistake in any case, but when cash gets tight, it can be fatal. Nothing can be more basic in personal finance than balancing your checkbook. The same is true for small businesses. Prepare an income statement every month to track your expenses and profits. Keep a quarterly balance sheet to track your assets and liabilities and have a cash flow statement. It is startling how many businesses get in trouble by not keeping up with these basic fundamentals.

Improve your financial statements. Increase your profits by reducing controllable expenses (occupancy costs and overhead), improve the gross margin (reduce the cost of goods and avoid steep discounting), and eliminate losing ventures. Improve your balance sheets by reducing working capital (inventory and accounts receivable), long-term liabilities (rent obligations), and capital expenses. Increase cash flow by taking advantage of trade terms, avoiding penalties, and reducing taxes, among other courses of action. Seek out a financial advisor to help develop a plan. Then, make the tough decisions and stick by them.

Access credit markets. It’s amazing to me how many small businesspeople are reluctant to ask for and press for credit. I have found that more often than not a resilient effort backed by a legitimate plan will work, as long as you understand the lending requirements and stick to the plan.

These basic points may seem painfully simple to a business academic, but most small business owners focus on their value creation rather than on business per se. In these tough times, they need to improve the “business of doing business” to survive.