Tips for Surviving this Economy

Most entrepreneurs hate dealing with the most important part of their business, the finances! A successful business owner must understand how much money is coming in and how much is spent. In a downturn economy, it is even more critical to keep an eye on the cash flow. This is true for both retail and consulting business models.

The overhead costs for retail businesses can be crushing. Regardless of the number of customers that walk in, the rent and utilities must be paid. An article, Strategies for an Economic Downturn, put together by Virginia Small Business Development Center (SBDC), has a checklist of steps to take in order to stay viable even when sales have slowed. Although truly relevant for business owners struggling to stay open, the advice is a good reminder for all business owners about the importance of tightening your cash flow cycle, targeting your marketing, and staying on top of your business. When struggling to make ends meet, business owners tend to run around doing everything just to stay in business. Remember to give yourself the time to stop, breath and really look at your business model and finances. Are their ways to improve how quickly you get paid? Can you negotiate to lower your rent? Have you contacted your most frequent customers with incentives to come in? Rather than work frantically in your business, think about ways to cut costs, tighten efficiencies and do low cost marketing.

Although they do not have the overhead of their retailing counterparts, consulting businesses are also struggling to find clients. The second article, Structural Improvements, from CFO.com, discusses ways that professional services can restructure their payment processes to make it easier on cash-strapped clients. Although the article is looking at just a few professions, it is good to think about how your payment structure can attract clients. Remember, everyone is cash-strapped right now. Try to figure out ways that let clients distribute costs over time, or plan for a fixed cost, rather than an hourly rate. The more you work with your client to create a win/win payment system the more they will want to do business with you.

It’s All In the Timing

Is now a good time to start my business? The answer to that question, unfortunately, is, “It depends.” Like so much else in life and business, the answer is affected by factors both within and outside your control.

For me, the answer was easy. I know what I love to do, help small businesses. With no jobs available that would allow me to pursue my interest, I had little choice but to start my own business. I am also lucky because my business has low start up costs and my husband’s job provides health insurance. To start my business, I bought a computer, some business cards, and invested time in the basics: networking, identifying potential power partners and research on local small businesses. Not everyone is so lucky.

Some factors to consider before starting a business in any economy:

• Do you have a cash reserve/ way to pay the rent while you are waiting for your business to take off?
• Do you have enough money and equity to get the capitol you need to start, and succeed?
• Do you have the necessary experience? If not, can you work for someone else to get it?
• Is your family supportive of your decision? Are they comfortable sharing you (and your time) with the new venture?

I usually include a line about willing to work hard and live with insecurity. However, in this work environment there is no guarantee that a job is more secure than starting your own business or that you will work fewer hours. Still, if you possess a secure job with reasonable hours, consider the change of lifestyle before deciding to start your business. You will work 24/7 if not directly, than because you will constantly be thinking about your business. (Yes, I have literally dreamed about helping small businesses.) It can also be a stress on relationships. Where are you in your life? Can you dedicate that much time to something new?

If the answer to the first two bulleted questions was “no,” lack of cash does not have to stop you from starting your business. If you can’t save to start your business, or win the lottery, try starting your business slowly. For now, we will discuss ways to start your business without serious investments (bank loans or outside investors). I recommend, “Moonlighting,” starting your business slowly while keeping your day job. This is not always possible, but with a little creativity, you can often start your business before investing in serious overhead costs. When you feel you have a solid product/service that has good demand and enough clients to financially sustain you, quit your day job. Although ideal financially, this scenario is not easy.

Eilene Zimmerman, from the New York Times wrote an article describing the perils of moonlighting including: increase in stress, difficulty in life/work balance and the need to separate the two jobs. Depending on where you work, and what you want to do, your employer may not allow you to moonlight. Her conclusion is if you must moonlight, do something that is different from your primary job. For example, if you have a job where you sit a lot, find something active to do. The article is good, but it is looking at moonlighting as a way to bring in extra cash. I am recommending moonlighting for a different purpose, a short time period in order to remain financially solvent while your business grows.

Another way to sustain yourself while your business takes off is to find a part time job. This is particularly true if you can get work in a related industry. You can also try to work part time at your current place of employment. If you want to start consulting in a field similar to your current area of work, talk to your current boss. I have had many clients start their consulting business, and their first client is their old employer!

Think hard before you start your new venture; is this the right thing for you, right now? If so, plan, get ready, and jump!