Small Business: Smarter About Capital In A Down Economy

In a down economy, if you are an IBM, a Chevrolet or an AT&T, your access to capital is limited only by the state of the capital markets (stocks and bonds) and the appetite of major commercial banks.  Plus, the ability of large companies to generate temporary cash flow from operations is legendary.  If you own the local print shop, a local fast food franchise, PR firm or furniture manufacturer, you are in a completely different situation.  What are the secrets large corporations know about capital and cash flow that will help you stay afloat?

The Usual Capital Sources. The chances are good that you have considered and have access to all the usual sources:  banks, equipment leasing companies, strategic partners, and angel investors.  Approach them by all means, but in an economic downturn, you probably have to manage your expectations.  Capital sources will require more time to develop working relationships with new borrowers.  Most of them already have an existing portfolio of investments and loans and they are likely to be spending a good deal of their internal resources assisting those businesses.  Therefore, the sources most likely to work with you are those with whom you have been working.  Keep your initial focus on them even as you are opening new capital doors.

Suppliers. For any small business, vendors and suppliers have long been a major source of capital.  Payment terms can often be renegotiated and orders can be delivered on a just-in-time basis.  Also consider resource pooling.  For example, if your half-full delivery truck is going their way, stop at a mutual supplier to pick up their order.  Or their warehouse has plenty of available space – ask to store your transit goods in an out-of-the-way corner.  Be prudent about this type of resource mingling.  Try to keep it to those business associates with whom you have a long-standing and good relationship.

Customers.  The chances are good that you have already stepped up receivable collections.  Now is also the time to consider changing payment terms with key customers and to analyze how and when you bill. You may want to extend cash discounts from 2%/10 days to 2%/20 days in order to bring in needed cash.  Or be more strict about long-standing accounts by putting them on an installment payment plan.

Commissioned sales people and other staff.  Down economies generate larger than normal levels of talented people who have been “down-sized” by larger firms.  Some of these folks may have just the sales experience and contacts you need to land the big contract your bank and leasing firms are looking to support.  The chances are good you can find salespeople willing to work on commission or fairly low draws for defined periods of time.  Thus, the fixed salary cost savings are a form of capital provided by outside contractors who are investing their time in your business.

TIP:  If there are underperforming staff in your shop, it may be time to consider replacing them with hungry and trained people willing and able to help your business get through to the next growth period.

Your employees. Your employees are another source of capital for your business.  But before you start asking for volunteers to invest their own money, think instead about the way that they work.   You may ask key people to stay an hour more per day or join you for weekend planning or administrative sessions.  You may ask employees to forget about that planned raise or even take a reduction in salary.  Just remember that when business turns up, you need to reward their sacrifices in tangible ways.

You. Many, if not most, small business owners have a large percentage of their personal fortune tied up in their business. Second mortgages and home equity loans, personal credit lines and even personal credit cards are common forms of capital.  Just as common is cutting back on your own salary or working nights and weekends taking care of administrative tasks usually delegated to an employee.   Less common among small business owners is networking within their family.  Consider asking family members to help you with tasks that need to be done, but which your business just cannot afford to pay for right now.  The chances are good that your family has benefited from your business in the past and it may be time for them to return the favor.

Advantage:  Small Business.  One of the key advantages of small businesses is their ability to decide and move quickly.  Another is their ability to form close relationships with their business associates – employees, suppliers, customers and advisors.  These two characteristics can help your company find the resources it needs to stay alive or even flourish in a down economy.