Survival Tips For Small Businesses
You may be in Mail Order, Direct Mail, or you may be a
local
merchant with 150 employees; whichever, however or
whatever---you've got to know how to keep your business
alive
during economic recessions. Anytime the cash flow in a
business,
large or small, starts to tighten up, the money management
of
that business has to be run as a "tight ship."
Some of the things you can and should do include protecting
yourself from expenditures made on sudden impulse. We've
all
bought merchandise or services we really didn't need
simply
because we were in the mood, or perhaps in response to
the
flamboyancy of the advertising or the persuasiveness
of the
salesperson. Then we sort of "wake up" a couple
of days later and
find that we've committed hundreds of dollars of business
funds
for an item or service that's not essential to the success
of our
own business, when really pressing items had been waiting
for
those dollars.
If you are incorporated, you can eliminate these "impulse
purchases" by including in your by-laws a clause
that states:
"
All purchasing decisions over (a certain amount) are
contingent
upon approval by the board of directors." This will
force you to
consider any "impulse purchases" of considerable
cost, and may
even be a reminder in the case of smaller purchases.
If your business is a partnership, you can state, when
faced with
a buying decision, that all purchases are contingent
upon the
approval of a third party. In reality, the third party
can be
your partner, one of your department heads, or even one
of your
suppliers.
If your business is a sole proprietorship, you don't
have much to
worry about really, because as an individual you have
three days
to think about your purchase, and then to nullify that
purchase
if you think you don't really need it or can't afford
it.
While you may think you cannot afford it, be sure that
you don't
"
short-change" yourself on professional services.
This would
apply especially during a time of emergency. Anytime
you commit
yourself and move ahead without completely investigating
all the
angles, and preparing yourself for all the contingencies
that may
arise, you're skating on thin ice. Regardless of the
costs
involved, it always pays off in the long run to seek
out the
advice of experienced professionals before embarking
on a plan
that could ruin you.
As an example, an experienced business consultant can
fill you in
on the 1244 stock advantages. Getting eligibility for
the 1244
stock category is a very simple process, but one with
tremendous
benefits to your business.
The 1244 stock encourages investors to put equity capital
into
your business because in the event of a loss, amounts
up to the
entire sum of the investment can be written off in the
current
year. Without the "1244" classification, any
losses would have to
be spread over several years, and this, of course, would
greatly
lessen the attractiveness of your company's stock. Any
business
owner who has not filed the 1244 corporation has in effect
cut
himself off from 90 percent of his prospective investors.
Particularly when sales are down, you must be "hard-nosed" with
people trying to sell you luxuries for your business.
When
business is booming, you undoubtedly will allow sales
people to
show you new models of equipment or a new line of supplies;
but
when your business is down, skip the entertaining frills
and
concentrate on the basics. Great care must be taken however,
to
maintain courtesy and allow these sellers to consider
you a
friend and call back at another time.
Your company's books should reflect your way of thinking,
and
whoever maintains them should generate information according
to
your policies. Thus, you should hire an outside accountant
or
accounting firm to figure your return on your investment,
as well
as the turnover on your accounts receivable and inventory.
Such
an audit or survey should focus in depth on any or every
item
within the financial statement that merits special attention.
in
this way, you'll probably uncover any potential financial
problems before they become readily apparent, and certainly
before they could get out of hand.
Many small companies set up advisory boards of outside
professional people. These are sometimes known as power
Circles,
and once in place, the business always benefits, especially
in
times of short operating capital. Such an advisory board
or power
circle should include an attorney, a certified public
accountant,
civic club leaders, owners or managers of businesses
similar to
yours, and retired executives. Setting up such an advisory
board
of directors is really quite easy, because most people
you ask
will be honored to serve.
Once your board is set up, you should meet once a month
and
present material for review. Each meeting should be a
discussion
of your business problems and an input from your advisors
relative to possible solutions. These members of your
board od
advisors should offer you advice as well as alternatives,
and
provide you with objectivity. No formal decisions need
to be made
either at your board meeting, or as a result of them,
but you
should be able to gain a great deal from the suggestions
you
hear.
You will find that most of your customers have the money
to pay
at least some of what they owe you immediately. To keep
them
current, and the number of accounts receivable in your
files to a
minimum, you should call them on the phone and ask for
some kind
of explanation why they're falling behind. if you develop
such a
habit as part of your operating procedure, you'll find
your
invoices will magically be drawn to the front of their
piles of
bills to pay. While maintaining a courteous attitude,
don't
hesitant, or too much of a "nice guy" when
it comes to collecting
money.
Something else that's a very good business practice,
but which
few business owners do is to methodically build a credit
rating
with their local banks. Particularly when you have a
good cash
flow, you should borrow $100 to $1,000 from your banks
every 90
days or so. Simply borrow the money, and place it in
an interest
bearing account, and then pay it all back at least a
month or so
before it's due. By doing this, you will increase the
borrowing
power of your signature, and strengthen your ability
to obtain
needed financing on short notice. This is a kind of business
leverage that will be of great value to you if or whenever
your
cash position becomes less favorable.
By all means, join your industry's local and national
trade
associations. Most of these organizations have a wealth
of
information available on everything from details on your
competitors to average industry sales figures, new products,
services, and trends.
If you are given a membership certificate or wall plaque,
you
should display these conspicuously on your office wall.
Customers
like to see such "seals of approval" and feel
additional
confidence in your business when they see them.
Still another thing often overlooked: If at all possible,
you
should have your spouse work in the business with you
for at
least three or four weeks per year. The important thing
is that
if for any reason you are not available to run the business,
your
spouse will be familiar with certain people and situations
about
your business. These people should include your attorney,
accountant, any consultants or advisors, creditors and
your major
suppliers. The long-term advantages of having your spouse
work
four weeks per year in your business with you will greatly
outweigh the short-term inconvenience. Many couples share
responsibility and time entirely, which is in most cases
even
more desirable.
Whenever you can, and as often as you need it, take
advantage of
whatever free business counseling is available. The Small
Business Administration published many excellent booklets,
checklist and brochures on quite a large variety of businesses.
these publications are available through the U.S.Government
printing office. Most local universities, and many private
organizations hold seminars at minimal cost, and often
without
charge. You should also take advantage of the services
offered by
your bank and local library.
The important thing about running a small business is
to know the
direction in which you're heading; to know on a day-to-day
basis
your progress in that very direction; to be aware of
what your
competitors are doing and to practice good money management
at
all times. All this will prepare you to recognize potential
problems before they arise.
In order to survive with a small business, regardless
of the
economic climate, it is essential to surround yourself
with smart
people, and practice sound business management at all
times.
------------------------------------------------------------------------
Liquidation-Liquidity or to
sell?
by: Sam Vaknin, Ph.D.
Large parts of the world today suffer
from a severe liquidity crisis. The famed globalization
of the capital markets seems to confine itself, ever
more, to the richer parts, the more liquid exchanges,
the more affluent geopolitical neighbourhoods. The
fad of "emerging economies" has all but
died out. Try telling the Macedonians about global
capital markets: last year, the whole world invested
8 million USD in their poor country. Breadwinners
earn 300 DM a month on average. Officially, in excess
of one third of the workforce is unemployed. Small
wonder that people do not pay their bills, employers
do not pay salaries, the banking system has a marked
tendency to crash every now and then and the average
real default rate is 50%.
Illiquidity erodes the trust between
the economic players. Such trust is a precondition
to the existence of a thriving, modern economy. We
all postpone the gratification of our desires: we
save now and consume later, for instance or we sell
goods or services and get paid a month later. Such
postponement of gratification is at the heart of
the economic machine of the new age. It cannot be
achieved, however, if the players do not trust each
other to fulfil their promises (to pay, for example).
Alternatively, the state can instate an efficient
court system, aided by active law enforcement agencies.
Keeping promises can be imposed to counter the natural
tendency to ignore them.
The countries in transition lack both:
liquidity necessary to keep one's monetary word and
the legal system to force him to do so if he reneges.
Small wonder that solutions are actively being sought
by all involved: the business community, the state,
the courts and even by consumers.
In this article, we will describe a
few of the global trends. The trends are global,
the reaction is world-wide because the problem is
global. Bouncing checks have become a household reality
in places as rich as Israel, for instance. The mounting
crisis in Southeast Asia foreshadows bankruptcies
and delinquencies on a chilling scale.
The simplest method is to revert to
a cash economy. Payments are accepted only in cash.
This, naturally, slows the velocity of money-like
products and diminishes their preponderance, obstructing
the expansion of economic activity. An even more
malignant variant is the barter economy. Goods and
services are swapped on a no-cash basis. It is money
that generates new value added (by facilitating the
introduction of new technology, to mention but one
function). In the absence of money, the economy stagnates,
degenerates and, finally, collapses because of massive
mismatches of supply and demand aggregates and of
the types of goods and services on offer and demanded.
Still, this system has the advantages of keeping
the economic patient alive even following a massive
liquidity haemorrhage. In the absence of barter economy,
the economy might have ground to a complete halt
and deteriorated to subsistence agriculture. But
barter is like chemotherapy: it is good for a limited
period of time and the side effects are, at times,
worse than the disease.
In many countries (Georgia, to mention
one) defaults are prevented by demanding prepayment
for projected consumption. Let us take the consumption
of electricity as an example: many heavy users and
numerous households do not pay their bills at all.
To disconnect the electricity is an effective punitive
measure but it costs the electricity company a lot
of money. The solution? Programmable Electronic Meters.
The consumers buys a smart card (very similar to
phone-cards). The card allows the buyer to use a
certain amount of prepaid electricity and is rechargeable.
The consumer pays in advance, electricity is not
wasted, the electricity company is happy, the tariffs
go down for all the users. Prepayment does have a
contracting effect on the demand and usage of electricity
- but this is welcome. It just means that people
use electricity more efficiently.
A totally different tack is the verification
approach. The person making the payment carries with
him a card which confirms that he is creditworthy
and will honour his obligations. Otherwise, the card
also serves as an insurance policy: an entity, not
connected to the transaction, guarantees the payment
for a fee. This entity is financially viable and
strong enough to be fully trusted by the recipient
of the payment.
This market in credit guarantees is
more developed in the USA (where credit cards have
overtaken cash and personal checks as a mode of payment)
than in Western Europe. But even in Europe there
are credit card equivalents which are very widespread:
the Eurocheck card, for instance, is really a credit
card, though it usually comes with physical checks
and guarantees only a limited amount. One must differentiate
the functions of a debit card (with direct and immediate
billing of a bank account following a transaction)
from those of a credit card. The latter allows for
the billing of the account to take place in a given
day during the month following the month in which
the transaction was effected or converts the payment
into a series of instalments (within the credit limits
of the cardholder as approved by his bank). But in
both cases, the guarantee is there and is the most
predominant feature of the system. Such cards seem
like a perfect solution but they are not: the commissions
charged by the card issuers are outrageous. Between
2 and 10 percent of the payment made go to the pockets
of the card issuers. Cards get stolen, forged, lost,
abused by their owners, expire. But with the advent
of new technologies all these problems should be
solved. Electronic POS (point of sale) cash registers,
connected through networks of communication, check
the card and verify its data: is it valid, is it
presented by the lawful owner, was it stolen or lost,
is the purchase within the limits of the approved
credit and so on. Then, the billing proceeds automatically.
Such devices will virtually eliminate fraud. The
credit card companies will guarantee the payments
which will be subject to residual crime.
Another fast developing solution is
the smart card. These are cards similar to phone
cards and they can be charged with money in the bank
or through automatic teller machines. These cards
(in wide use in Belgium, Austria, Germany and many
other countries) contain an amount of money which
is deducted from the cardholders account. The account
is billed for every recharge. The card is the electronic
(and smart) equivalent of cash and it can be read
(=debited) by special teller machines in numerous
businesses. When payment is made, the money stored
in the card is reduced and the recipient of the payment
stores the payment on magnetic media for later delivery
to his bank (and crediting of his account).
A more primitive version exists in
many countries in Eastern Europe: depositors receive
checks exactly corresponding to the amount of money
deposited in their account. These checks are as safe
as the banks that issued them because they are fully
convertible to cash. They are, really, paper "smart
cards".
Credit cards and (more cheaply) smart
cards are a way to restore confidence to a shattered,
illiquid economy. Macedonia should consider them
both seriously and encourage them through the appropriate
legislation and assistance of the state. For Macedonia,
the choice is to be liquid or, God forbid, to economically
self-liquidate.
About The Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After
the Rain - How the West Lost the East". He is a columnist in "Central
Europe Review", United Press International (UPI) and ebookweb.org
and the editor of mental health and Central East Europe categories in
The Open Directory, Suite101 and searcheurope.com. Until recently, he
served as the Economic Advisor to the Government of Macedonia.
His web site: http://samvak.tripod.com
|
