Thursday, October 16, 2008

Running a Small Business in Difficult Times

During the previous recession, a.k.a the dotcom bust, I was running my own small business (a business development consultancy), and let me tell you something: running a small business in a recession is not an easy thing to do. Here a few of the lessons I learned as a business owner during those rough years:

1. Fight for Every Customer - in a tough environment no project is too small, and no customer should be allowed to escape. If that means being flexible on price, so be it. Of course, taking projects that would lose you money is never a good idea.

2. Repeat Business is the Best Kind of Business - getting your old customers to come back for more is key to success in a tough market. In a difficult economy customers are apprehensive about hiring new vendors, and are less inclined to take risks. They spend their money with the people they already know. All of which means that the first place to look for new business is with your old customers.

3. Prepare for Lean Times - big businesses all over the country are laying off employees, cutting spending and generally tightening their belts. They have the right idea. What works for big business is doubly true for a small business with much more limited reserves and resources. Cut all unnecessary expenses and push back any capital spending. However, there is one exception to the rule: sales and marketing efforts should be maintained or even increased. It makes no sense to save a few dollars on advertising, for example, if those savings will cost you thousands in lost projects.

4. Develop Financial Flexibility - in tough times you can be sure that customers will pay you late, that you will suffer some bad debts and that there will be some lean months. You can make sure that these expected set-backs don't kill your business by developing some financial flexibility. Get to know your bank manager (actually, being on a first name basis with your bank manager is something every business owner should do regardless of the economy), make sure that you have a credit line that is sufficient for your needs, and just in case, make sure that you have a couple of good Business credit cards that you can use in case of an emergency, and if you find yourself in financial difficulty, it may not be a bad idea find some good Transfer Credit Cards if you need to move a balance.

The good thing about tough economic times - if there is anything good about them - is that if your business emerges intact on the other side, you know good times are bound to follow.

3 comments:

Unknown said...

I like this post. I'll have to keep it in mind because I plan on running my own business soon. I know it’ll be challenging, but I’m up for it and will appreciate all the help I could get with the ins and outs of running a business. I especially need it during these hard times. Instead of starting one from scratch, I've thought of buying a business. Any suggestions? Advice? Thanks.

Shadox said...

The benefit of buying a business rather than starting one is that you already know what you are getting yourself into. You can look at financial statements, customer records and so forth. Essentially, you are reducing your level of risk.

My advice to you is that if you are buying a business in an environment such as this, be sure to discount past performance when making your projections about the future. Assume that the difficult business environment will make it harder to do business, especially in the next couple of years.

This is a very broad topic, and I will be glad to answer any specific questions you may have, to the best of my ability.

Unknown said...

Thanks for your help. I really appreciate it. I know that right now isn't the opportune time to buy a business (and run one for that matter), but I've been seeing relatively inexpensive businesses on those sites like BizTrader.com and BizBuySell.com, but I'm still on the fence. I might just have to hold off on it for a while. Again, thanks for your help, and as I develop more specific questions, I'll ask you.