By Dr. Brandon J. Kim, PhD, DPM
The current economic situation presents severe challenges for small business owners. For all intents and purposes, banks are insolvent. Despite multi-billion dollar government bailouts, banks are no longer capable of providing liquidity to fuel business growth both small and large. The central thesis of why the credit market has “seized” up is a topic for another time as it is too complex for the scope of this article.
Small business is the life-blood of “American Dream.” It is the engine that drives American economy. However, without availability of credit, many small businesses are forced to drastically curtail business operations, limit expansion plans, reduce payroll, and ultimately forced out of business. Current Administration has neglected to see the central importance of small businesses for the American economy and has proposed to further burden already strapped small business owners with rising payroll taxes, stifling health insurance requirement, and inability to revive bank lending.
Despite such dire predicaments for small business owners, opportunities exist for the prepared and enterprising. Leverage is what got this economy into the current crisis. Likewise, those businesses that will survive and even thrive in this environment are those that have “de-leveraged” or have taken care of debt load.
The balance sheet must be pristine. If it is not, active effort must be undertaken to achieve clean balance sheet. This can include debt restructuring with creditors, curtailing expensive projects that will not add to revenue, analysis of profit margin, and review of local demographic trends for the business in question. If the business cannot pin point these items, it will have challenges ahead as this economy will not improve overnight.
Cash is king. Business owners must ensure prompt payment for their services. If a business is dependent on extending credit, a serious evaluation must take place on the accounts receivables. Any account that is aged beyond net 30 days must be aggressively attended to. The business practice of allowing the AR to age past net 90 days in this economic environment is near suicide.
Marketing is important. More than ever, small businesses must make their existence relevant and recognizable to potential customers. Sadly, one of the first business expense cut during tough economy is marketing. However, there are cost effective and creative ways of marketing without sending the business to financial dire straits. One of the most neglected avenues for business generation is B to B (Business to Business) marketing or networking. It is cost effective and creates tremendous cross marketing power. The power of B to B marketing is in its simplicity. A united alliance by two dissimilar business types creates tremendous reach into diverse dissimilar potential customers or clients.
Web presence must be relevant and focused. A simple well designed website that is configured to be searchable and customer friendly is important. Many businesses still do not have web presence. This, I believe is a mistake. The customers’ shift away from traditional telephone books is a reality. Expensive advertising need not be undertaken. For less than $3.00 per customer acquisition, CPC (Cost Per Click) offered by many search engines is a cost effective and efficient way to promote your business on-line. Additionally, supporting local print media targets your potential customers, and while a bit more costly, you get the desired effect of targeting your demographics.
The final small business tactic to consider in severe recessionary economy is to expand. It is a bit radical but if the business was prudent and managed the business conservatively, the free capital can be used for expansion or investment. Businesses could be acquired or initiated at pennies on the dollar. Labor cost is falling and talent pool for potential employees is high. It will be tough to do, no doubt. However, while competitors are being forced out of business, the current economic climate presents unique opportunity to gain market share like no other. If the business is generating free excess cash flow it may be the right time to provide capital for exciting start-ups and act as a Private Equity Firm.
Whatever the case may be, formulating small business tactic is important. Creativity and sound management is crucial for survival.
