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.
Author
JW Boxley
Permission is granted to reproduce this article
but credit must be given to the
author and also a link back to
http://www.dailyhealth.us.
No part of the article content can be modified.
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Liquidity or Liquidation
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
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