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Running or managing a small business often
leaves little time to keep track of national,
and even regional, economic indicators that
might affect your industry and your specific
operation.  Yet conditions such as interest
rates, inflation, gross national product,
stock prices and consumer confidence have
direct impact on your profitability and on
relationships with vendors, customers and
even employees.  

     During periods of economic decline,
whether widespread or cyclical for a parti-
cular type of business, entrepreneurs are
most likely to bear the brunt.  Yet the fact
that conditions are changing opens up oppor-
tunities for resourceful firms to outsmart
larger competitors who, during a downturn,
carry on business as usual or are unable to
adapt quickly -- except to fire employees.
Such innovative small firms can: 

* Gain market share by taking it away from
competitors unable to adjust to shifting mar-
ket conditions.

* Maintain a strong cash stream throughout
the downturn, in contrast to other companies
that may have liquidity problems. 

* Become a leaner, more cost-effective and
more efficient operation, better positioned
to do well when the market improves.

     The challenge is to be aggressive and
imaginative.  Entrepreneurs who survive and
even prosper during hard times must be able
to look beyond the present, to overcome the
constraints of tradition, to see the firm
from a new perspective, and to do business

     Here are 14 specific recommendations
for small business owners and managers to
follow during economic upheavals:
1. Watch your inventories carefully, but
don't hold them down so tight that you'll
lose sales.  Typically during a slowdown,
there is an imbalance between slumping re-
tail sales and bloated inventories -- don't
be saddled with leftover merchandise that
ties up your cash flow.

     One possibility is converting inven-
tories into cash.  If your business tradi-
tionally stocks 250 units of each of its
slowest-moving products, consider cutting
that number to 100 each.  Monitor the re-
sults, keeping an eye out for those pro-
ducts that can tolerate even leaner inven-
tories or that should be eliminated from
your stock.  This way if sales nosedive,
less of your cash is locked into unproduc-
tive assets.

2. Taking that point further, monitor your
cash flow very diligently, and forecast it
monthly to ensure that expenses and planned
expenditures are in line with accounts re-
ceivable.  Make sure your financial state-
ments provide information that is timely,
relevant and accurate.  Cash flow statements
are superior in this regard to income state-
ments and balance sheets.  Be able to pro-
ject where you will stand three months in

     Negotiate with suppliers, contractors
and landlords for better prices or short-
term reductions, and even consider trading
goods and services on a barter exchange
for credits instead of for cash.  Take ad-
vantage of supplier discounts for prompt
payment, and don't pay checks for no-dis-
count bills before they're due.

     If the cash bind has already surfaced,
talk to creditors before the bills are past
due to persuade them to extend payments of
your current bills.  Your chances of get-
ting their cooperation will lessen if you
wait until they send collection memos.  Keep
in mind that suppliers' credit managers will
be more receptive if your payment history is
a solid one, and you can assure them future
bills will be paid on time.

3. Separate the "nice to do" from the "have
to do," and eliminate nonessential expenses
as much as possible.  Ask yourself, is that
activity necessary?  If not, don't do it.
Also consider cutting personal spending. 
Simple solutions such as brown bag lunches
and car pooling can make a difference.

4. Reduce or stretch out debt, and build up
your capital reserves.  Watch the credit-
worthiness of your customers, even bread
and butter accounts.  Remaining close to
existing customers, and checking to see how
they are getting on during the economic
downturn, not only helps avoid unpleasant
surprises but could also lead to new oppor-

     Besides, when sales are sluggish, keep-
ing in touch with customers (always a sound
business practice) becomes vital to head off
eager competitors.  If appropriate, encour-
age sales people to call on every customer
on a regular basis, and set aside some of
your own time to do the same.  Frequent face-
to-face meetings with your client base pro-
vides an excellent opportunity -- probably
your only one -- to pacify disgruntled cus-
tomers and win back lost ones.

     Try to lock up long-term contracts with
your most important customers at anything ap-
proaching acceptable terms.  Offer prepayment
incentives, for example, and discounts on
long-term buys.

5. Get aggressive with collections.  According
to the partner of a consulting firm, "when
business is good, companies tend to become lazy
about collecting on receivables.  This can
prove dangerous in a recession."   Assume that
the average collection period for your indus-
try is 45 days, but your company is at 51 days.
After bringing that collection period down to
the industry average, keep working to get it
down to 40 days.  Being tough with customers
may be unpleasant, but it's an important safe-
guard against the effects of a prolonged eco-
nomic slowdown.

6. In a related vein, look hard at capital
spending.  Consider delaying both the purchase
of high ticket items and expansion plans that
take a long time to pay off.  At the same time,
make sure you have enough capacity to start
filling orders again when the economy stabilizes.

7. Strengthen your banking relationships, which
includes letting lenders know the company's fi-
nancial position.  Banks are looking for busi-
ness to boost their income, but are also trying
to minimize risk, so they are careful about
what kind of loans they undertake.  Most ex-
perts agree, however, that seeking additional
credit during a recession is not advisable.

8. Look for opportunities to reduce rented
space.  If, similar to many companies, you ac-
quired space in anticipation of staff expansion
that ultimately proved unnecessary, this may be
a good time to sublet that space -- thus reduc-
ing overhead and generating extra income.

     With this in mind, commit yourself to sub-
leasing a set percentage of your company's space.
By consolidating operations and removing unused
equipment, you may find that much of the space
you thought you had to have was simply draining
the bottom line.

9. Now is the time to be prudently aggressive in
the marketplace.  Actively seek out new business,
and perhaps add a salesperson or two or an extra
service to give you an edge over competition.

10. Similarly, don't skimp on service and quality
by being understaffed.  Options include free-
lancers, consultants and part-time employees.  One
advantage of a slowdown is that hiring gets easier
because there are more candidates from which to
choose due to layoffs and other cutbacks.

11. In strategizing how to build your customer
base and induce current customers to raise reve-
nues, the importance of good service cannot be
overstressed -- especially as their buying power
or willingness to spend is lessened during tough
economic times.  Studies show that perception of
service is fixed primarily in terms of time in a
customer's mind.  Three examples are:  waiting
time to obtain service; reaction time to deliver
service; and length of time of the service.  In
banks or stores, or phoning in orders or for in-
formation, prospective customers will walk out
or hang up if their time perception is strained.

     According to management consultant Donald
Blumberg, author of Managing Service as a Stra-
tegic Profit Center, customers will temper their
time demands when they see store employees busy
helping other customers.  But they will not be
so tolerant when clerks are chatting with one
another or on the phone while waiting customers
are ignored.  An informal, friendly attitude by
owner-managers is key to a happy workplace,
with emphasis clearly placed on the important
role all employees play in meeting customer
needs for attentive, timely service.

12. Historically, many businesses reduce adver-
tising and promotional expenditures rather than
slash fixed costs during hard times.  However,
studies have shown that those maintaining or
increasing ad outlays during slowdowns wind up
outselling rivals who cut back.

     Savvy marketers can boost sales and market
share, even if the industry in which they com-
pete is in a slump, by focusing on short-term
tactical techniques such as sales and price
promotions (including cents-off coupons and
rebates), and tailoring advertising in response
to the shaky economic climate. 

     Survival guidelines include:

* Monitor your competitors' advertising.  If
they're cutting down, seriously consider in-
creasing your ad budget and hitting harder.
This will provide a great opportunity to cap-
ture -- and retain -- a larger share of the

* Avoid gimmicky and clever advertising. Cen-
ter your message on the benefits and advan-
tages of your product or service -- such as
convenience or energy efficiency -- rather
than making emotional appeals.

* Use direct-response advertising techniques.
Use hard-hitting copy with simple but convinc-
ing language, a special offer the prospect
will find hard to pass up, and a strong call
to action.

* Avoid ads that look like ads.  Make them
appear to be vital messages to the consumer
offering them the most for their money.

* Stress quality and durability.  Consumers
are looking for as much value as possible in
a weak economy.  But don't actually use the
words "quality" and durability,"  as they
have degenerated into advertising cliches.
Show, don't tell.

* Study advertising research thoroughly.
Know which page positions pull best, which
copy factors work effectively, which colors
do the job, and so on.  Spend every ad dol-
lar carefully.

* Re-examine your marketing mix to ensure
it is the most cost effective.

* Keep in mind that perceptions play a major
role in a week economy.  If people believe
money is going to be tight, they will behave
as if it is -- even if they have money to
spend.  Your ads have to convince prospective
customers that your product or service is a
wise investment.

13. Another mistake during recessionary times
is to reduce training budgets.  Training can
best be conducted during slack periods --
especially low-cost, on-the-job instruction
and broadened skill acquisition.  Also, local
community colleges offer a number of free
classes that teach and upgrade trade and office
skills and supervision techniques.

14. Get employees involved in policy choices
as well as tactics and implementation -- asking,
for example, if costs can be cut 15 percent with-
out layoffs.  If layoffs or a significant reduc-
tion in work hours are unavoidable, let employees
take a lead role in designing the program.
Shortened hours, job reassignments, job sharing
and other alternatives may surface.

     Meet with staff regularly to exchange ideas
on boosting productivity and other issues.
Create an incentive for good suggestions, and
foster a team spirit for survival.

     Remember that employees need to feel they
are important to your company, and that their
work is challenging them up to their full capa-
bilities.  "Do what I tell you" management styles
need to be replaced, because small businesses
whose owner or managers are "the whole show" can
definitely benefit by encouraging workers on all
levels to contribute their expertise instead of
just following orders.  This is especially true
during lean times when challenges to business
success are greatest.

     While economic downturns are admittedly
difficult, and increase the obstacles small busi-
nesses face in trying to survive and grow, it is
not axiomatic that companies have to slash earn-
ings and compress market share.  That recourse
befalls firms that take too long to realize what
must be done, or which resist change.  Resource-
ful entrepreneurs capture the available opportu-
nities, and take steps during today's hard times
to lay the groundwork for tomorrow's prosperity.
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