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10 ways to strengthen your small business against the coming economic depression

Big companies are preparing for a depression, you see their recent actions are based on advice from highly paid economic advisors. They also receive lots of support from their congresspersons. But what about the small business owner? How do you prepare for a downturn?

This list is not in "order" of importance. The people items are high on my own list in a lot of scenarios. It depends on what is going on in your business.

    1. Reconcile your cash

    Make sure you know exactly what is in your bank account. Every day.

    Get the bank's app so you can see the daily balance.


    2. Use accrual accounting.

    Verify your accounting team knows what they are doing. Do they understand accrual accounting? If not, then you may not know what is really going on in your business' finances.

    I have seen the effects of a "controller" from a company who discarded vendor invoices because cash was low. Everything seemed fine until he left the company. Then all heck broke loose.

    3. Watch your receivables

    Can your customers continue paying you? Are they slowing down? How do you know? Just because you have a "feeling" about your customers does not necessarily mean things are just fine. Use some simple measurements of time to pay for customers.

    There's an easy calculation called Days Sales Outstanding. You can do this overall or by each customer with a simple formula. Then track the progress. Ask the lead accounting person to figure this out.

    4. Watch your payables

    Similar to receivables, use some measurements to see how quick you are paying your vendors. Does any one vendor stand out as getting extremely preferential treatment?

    Make sure you use the full AP "terms" that each vendor offers. Know which vendors offer prompt payment discounts and be ready to turn them on or off if needed.

    5. Become good friends with your banker and get access to additional funding

    It's easier to borrow when you don't need the money. Any bank will be happy to lend money to a company that doesn't need it. The system is almost designed that way. Start the borrowing process, usually through a line of credit.

    Your local branch manager is incentivized to bring more business to the lending department. They will be happy to help because it'll help them advance in the bank too.

    6. Evaluate big ticket spending

    This should be happening every month. Lawyers, accountants, insurance can all be major expenses. Look at your costs every month.

    Even recurring office expenses can be trimmed. Start trimming these costs as soon as possible. I have seen companies continue paying leases for months and years without them even needing the equipment. People have subscriptions going on and on without really knowing if they need them.


    7. Keep your employees happy

    Your employees are going to get you through a low time. Make sure you regularly communicate with your employees, give them ability to contribute to cost savings efforts and come up with some extra rewards to recognize their efforts.


    8. Be a great role model for your team

    Live the way you want your team to live (at least in the office).

    I have seen business owners who used business funds to finance a lavish lifestyle. While a business owner (LLC owner) has every "right" to spend their own money how they wish, the business owner is not obliged to live that way. Employees who are asked to "cut back on office supplies" and "eliminate the cleaning crew" see the hypocrisy. They will not support the company in any sort of downturn.


    9. Find someone with experience to help manage the low points

    A good finance person can often find enough savings to "pay for themselves."

    I have helped companies save money with lawyers and insurance and many other areas. Often with no change to the service. It can make a difference of several months to the bottom line.

    10. Send invoices to your customers every day.

    Don't wait for the month end or another future point in time. If you can bill now, then do it. The sooner you send the invoice, the sooner you get the money in.

    I have seen companies send invoices to customers, then send a "statement" at the end of the month. Their customers were waiting until they received the statement before they made payment. The company seemed fine with it, but their receivables balance was growing too high.

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