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best practices: Surviving the Credit Crunch

best practices

Surviving the Credit Crunch

May 26, 2009
FROM PURCHASING SUPPLIES and inventory to paying vendors and making payroll, the credit crunch has made even the simplest tasks more difficult for small-business owners.

For Tony Jeler, owner of Swift Signs, a corporate sign maker in Sunnyvale, Calif., the hardest nut to crack these days is getting customers to pay up. Last week, 25 to 30 of his 250 accounts were overdue, compared with just five to 10 overdue accounts under normal circumstances. That resulting $20,000 deficit weighs on everything else the business does. “I have to buy supplies before I get a sign up. Not having a constant cash inflow makes affording to even make signs tough,” he says.

Small businesses have to step up their efforts — and get creative — if they want to survive the credit crunch, says Peter S. Cohan, president of Peter S. Cohan & Associates, a management consulting and venture capital firm in Marlborough, Mass. Here’s how to overcome five of the most common credit crunch problems:

Reeling in Receivables

The best way to reel in wayward customer payments is to not let them unravel in the first place by introducing late payment fines or penalties to your payment policy, says Cohan.

If your business is already weighed down by a stack of unpaid debts, picking up the phone and persistently reminding your clients about their obligations is your next best option. If you’re going this route, consider hiring a collections agent, says Justin Kitch, a vice president at Intuit Small Business, a unit of the Mountain View, Calif.-based bookkeeping software firm Intuit (INTU). Otherwise, you risk straining your customer relationships and losing future sales. But prepare to pay up: Collections agents keep 30 to 40 cents of every dollar they collect, Kitch says.

To circumvent the cost of hiring a collections agent and keep an arm’s length between him and his clients, Jeler brought in his wife to manage collections. (For advice on getting your customers to pay, read our story.)

Paying Bills On Time

When there isn’t enough cash to go around, paying one’s own bills naturally gets tougher, says Cohan. He suggests prioritizing: First, pay the costliest bills — those with late payment penalties — and the ones that impact your credit. Then, work down the debts you need to pay to keep your company afloat. For the rest, try negotiating payment arraignments, suggests Bob Fifer, president of Fifer Associates, a business management consultancy in Great Falls, Va. For instance, if you offer to pay cash, vendors may be willing to extend your payment schedule. If you’re in really bad shape, they might even accept less than what you owe, Fifer says.

Winning New Business

Since getting new customers takes money, business owners are dispensing their limited marketing dollars more discriminately these days. Rather than advertising in newspapers, for example, Patti Styka, owner of Foster City, Calif.-based Elegant Lagoon Cruises, is tapping into her existing customer base for added sales and referrals with the help of an email marketing service. For just $15 a month, she can send an email highlighting a special promotion or discount offer to up to 500 current and potential customers. On average, she says, about 50% of the people on her list open her emails and about 12% click through to her site for more information. “Compared to the cost of newspaper advertising, it’s a no-brainer,” she says. (For more on inventive ways to price your products to attract new customers, read our story.)

Making Payroll

While many firms have laid off employees to reduce payroll expenses, doing so can cost more in the long run. Not only do employees contribute to a company's productivity, they're trained to your company’s specific needs. To avoid the cost of retraining new hires down the road, implement employee furloughs or unpaid vacation days, suggests Cohan. (For more, read our story on trimming payroll without trimming jobs.)

Expanding Operations

It sounds counterintuitive, but as commercial rents have nosedived and business valuations are scraping the floor, now may be an ideal time to expand, says Gregg S. Fisher, president and chief investment officer at New York financial advisory firm Gerstein Fisher. “Proactive business owners are working toward positioning themselves for growth,” he says. “They are thinking about making investments in the business.”

Of course, expansion is largely contingent on getting a loan, which is difficult in today’s tight credit climate. However, businesses with a solid track record that can prove their future profitability will be in better shape. (For more on improving your chances of getting a loan, read our story.)

-Write to Diana Ransom at dransom@smartmoney.com

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Last 5 Comments
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loren Posted: 11:34 AM On May 30, 2009
good addition of small business page, and need continuing articles on credit crunch for small business , and remedies from experts. thanks,
FreakinOUT Posted: 11:54 PM On May 28, 2009
FGS people. are You For Real?
Business Is Meant to be Disrupted.
The Government is setting us up.
PLEASE Get a Home Paid For, A piece of Property,
Work on your Garden. Harder Times are Ahead......
Good Luck. and GBU all.
JK Posted: 6:56 PM On May 28, 2009
THE IDEA OF HAVING TO WORK LIKE THIS IS HORRIFYING. I QUIT THAT MADNESS A FEW MONTHS AGO AND AM MAKING A WONDERFUL AMOUNT OF MONEY WORKING FROM HOME OWNING MY OWN BUSINESS. I WAS CAUTIOUS AT FIRST, BUT SO HAPPY I DID NOT MISS THE OPPORTUNITY. WOULD YOU LIKE TO JOIN ME AND HAVE THE FREEDOM TO EARN WHAT YOU DESERVE? I HOPE SO.
HTTP://WWW.JKMAKINGMONEY.COM?&T=SMBIZARTICLE
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Fred Posted: 4:14 PM On May 28, 2009
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PedjMediaPage Posted: 2:52 PM On May 28, 2009
At locales, is the old art of pressing flowers. Soil is ready for planting Indian Corn, that could be the next pet rock of tradition. One that is simple, hard copy your blogs and E-mails, of your subjects, as Thomas Jefferson,then archive, letters, to and from betrothed, on a daily basis, hard copy (printed), you could in one year, the next Josephine and Napoleon. You box them in your printing paper box. You scan your blog or letter, unsigned once, signed for the second scan, burn them to CD. Numerous collector ideas, that could be of value, Altoids tins, a collectors item, that your grandmother puts treasures in like buttons or pins, or coins, this is the price of candy, with a tin and not a wrapper. It's planting time for flowers,drying kind,like Japanese Lanterns or Money Plants, or wheat straw. Traditions of old and new, and heirloom rags of winter into a sewn Quilt. A seed sown, ideas a wealth for a harvest.
Funding Sources for Business Posted: 11:47 AM On May 28, 2009
The so-called government stimulus money given to the financial institutions has never filtered down to the businesses that truly are in need of working capital. Thus businesses must find other alternatives that are tailored to their specific needs. One such program is called a Cash Advance,a factoring program based on the merchants credit card receivables.
apotashner Posted: 3:46 PM On May 27, 2009
In this economy companies must get creative when it comes to accessing working capital. I’d like to add a new financial tool to your list: online receivables financing. The Receivables Exchange, recently noted in the Wall Street Journal as the ‘eBay for receivables’, we hear from businesses everyday that have need to increase their cash flow due to slow paying customers. On the Exchange, they’re able to increase their short-term liquidity by selling the very asset that’s pinching their pockets, their receivables. By selling these in an open auction marketplace to accredited institutional investors they can access vital working capital in as few as 24 hours rather than the 40+ days for their customers to pay. They can use it how and when they need it. With 106% month-over-month growth in receivables traded, we have been fortunate to help so many companies optimize their working capital management.
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