Advice and Guidance for Small Business Owners during a Tough Financial Crisis

american entrepreneurship

Tough Financial Crisis

When a downturn in the business cycle occurs, small business owners must weather difficult times so they will still be in business when the economy improves.  To counter tough times, the best small business advice is to take a thorough look at your business operations and financials to deal with a slowing economy and the ensuing slowing sales.

The following small business advice addressed various business segments that can be managed differently in order to deal with the challenges of a recession.  It includes key financial advice for small business owners when facing a tough economic and financial crisis.

Financial review and suggested actions:

  1. Cut expenses:  When a business is going well unnecessary expenses creep into everyday business operations that are overlooked due to the time demands of a growing profitable business.

Once business revenue slows take a fresh look at daily activities and associated expenses that may reveal items that can be budgeted out or structured in a new way.

  1. Overhead: Consolidate working space, possibly re-negotiate your lease depending upon your situation, sub-lease part of your space, if permitted in your lease, that could bring in funds to help cover fixed overhead.
  2. In lieu of raises, offer some employees non-cash perks such as working at home one day per week. They may value the extra time, while understanding the complex challenges of a recession.
  3. Be very conservative in some common expenditures such as reducing the use of printed material that is very expensive and which often needs to be totally re-done if there is a change in marketing information or strategy.
  4. Review long term contracts to see if they can be terminated without penalty.
  5. Assess and reduce the use of energy, particularly in off hours or periods when full staff are not on premises.

    2. Monitor and manage your accounts receivable more closely: As the economy slows one of the first signs is the slowing of payments from customers.  Tracking your Accounts Receivable Report more often will help prevent any big surprises from clients who fail to pay.

    1. Maintain a weekly accounts receivable report and red flag accounts that are starting to slow down. Put out phone calls and requests for payment sooner.
    2. Request partial payments from slow paying distressed customers.
    3. Be very prompt about notifying clients of past due payments on invoices
    4. Do not loosen credit standards to attract new customers.
    5. If you have one major client, attempt to gradually build more relationships with a range of smaller customers, but always be aware of any competitors emerging against your bread and butter account.
    6. Better match your accounts payable cycle with your accounts receivable cycle.
    7. When cash reserves are low, offer discounts to customers so they pay promptly


  1. Preserve cash: In line with cutting expenses, you should be very aware of your cash levels that can be best managed through the use of cash flow projections
    1. Delay large investments such is equipment. Repair rather than replace non-working equipment.
    2. Barter for things that you might have paid cash for when the economy was growing
    3. Review recurring expenses such as automatic payments for subscriptions that may no longer be needed and were overlooked when operations were busier.
    4. Delay bonuses and raises.
    5. Freeze hiring. If the business is struggling, plan for and undertake layoffs sooner than later.  This is very hard to do, and owners often delay something that is inevitable.
  2. Firm up your bank relationship: The operative word is “relationship”.  It takes time for people to learn your business and it is not opportune to approach a bank for a loan when you are faced with challenges from a slowing economy.  Put some time in when things are going well to know your local bank representatives.
    1. Be aware of any reporting requirements so you are able to prepare you financial statements accordingly to protect any existing credit lines
    2. Get to know local bank representatives and other financial sources personally that can be contacted when needed.
    3. Learn the requirements of possible financing options.
  3. Delay capital investments: Large cash outlays into equipment or business development initiatives are riskier during slowing economies.  If you are being presented with opportunities to grow your business, be very demanding on knowing when the return on investment will occur and if the same activities can be done with smaller cash outlays over time rather in one large lump sum that takes too much cash out of the business.
    1. Lease instead of purchase
    2. Purchase equipment from secondary market at a discount

Operational Changes:

  1. Anchor your best customers against competitors: If you have large well established customers who will better able to weather the slowing economy, take very proactive steps to protect your relationship from competitors who will be willing to slash prices to gain new business.  Retaining your best clients during a slowdown and gaining more business from them is better than diverting attention to finding new and unknown customers when the marketplace is in bad shape.
  2. Keep your employees well informed when making hard decisions
    1. Recessions bring layoffs. When you anticipate having to lay off workers, spend time preparing how you will communicate this step to those you are laying off as well as those remaining employees so your best workers do not feel threatened.
  3. Reduce risk taking
    1. When losing a worker, if possible, be slow to replace them. See if their work can be absorbed by co-workers
    2. When opening up new markets or product launches do a very intense assessment as to what is expected in return. Delay expenditures until more concrete indicators occur that there will be a timely return on investment.
  4. Optimize your return on your existing assets: “Achieve more with less”
    1. Repair equipment rather than buy new
    2. Borrow or rent equipment requiring high capital investment
    3. Make sure you have an ROI for any major expenditures you make
    4. Look for redundancies in operations and trim
    5. Find less expensive alternatives such as reducing traveling and relying more on conference calls
  5. Change your staffing procedures
    1. Be slow to hire full time workers. Make sure there is a full job description warrants a hire.
    2. Use part-time or temporary staff before making a commitment to a new hire
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