Good Financial Practices in Economic Downturn Broad economic slowdowns can often trickle down to small businesses, including those in relatively stable industries or geographic locations.  Individuals tend to cut back on discretionary spending while corporations curb routine activities, delay major purchases, and shelve new initiatives. For many small businesses with limited resources, these and other factors often combine to pressure bottom lines past the breaking point, creating a domino effect of other dilemmas such as a credit crunch or layoffs. A downturn, however, doesn’t have to spell disaster for your small business.  Good financial management practices will help you weather even the worst of economic times, and be ready to capitalize on new opportunities will inevitably come with good times return. Begin with the basics.  Even when times are terrific, no small business can survive without good recordkeeping, budgeting, cash flow checking (or “burn rate” as some say), and credit management.  Cash flow monitoring and projection are extremely important in a downturn market.  Cash flow cannot be over emphasized.  On a monthly basis, check projected receipts and disbursement to understand net cash flow and working capital.  Without net cash flow the business cannot operate and it is next to impossible to get a loan to tide you over to the next month.  This is what precisely happened to AIG and Lehman Brothers. Consult your bank.  Lenders can tap their vast experience in economic cycles to advise you on issues specific to your business and industry.  Depending on your projected long-term expenses, consider arranging a line of credit in case a cash flow gap occurs. Be on good terms and in communication with your creditors.  Falling behind on payments is never the answer, even if it’s “just this once.”  Creditors will be more amenable to renegotiating terms to small businesses they consider to be conscientious and reliable. Watch your receivables.  By the same token, you need to stay on top of any outstanding debts to your business, particularly problem accounts.  Be firm, but also willing to negotiate where appropriate.  Reconsider inventory requirements and match to your projected product demand and reduce future inventory, which reduces accounts payable, wherever possible. Scrutinize your spending.  Rather than arbitrarily slashing your budget, strive to spend only on those things that have a justifiable positive effect on your business and delay expenditures that are not essential to the business.  That will make it easier to redirect money to areas that enhance business performance. Step up your review of financials.  Assess your financial reports at a more frequent rate, such as weekly or biweekly, rather than monthly, will put you in a better position to make informed decisions.  Similarly, a monthly review in bad times of your business plan enables you to adjust your strategy and direction to changing market conditions.  If you do not have a written business plan, create one.  It is a smart business practice because it causes the business owner to focus on his business direction and the changes that that need to be made to the business model that will improve your successful operational margin over any possible business failure.  It is taking a step back to view objectively your business healthiness. Keep marketing in the mix.  Look for cost-effective ways to keep your company visible to current customers and potential new markets.  They may be ready to restart their spending long before the news headlines proclaim an end to the economic crisis. For more help in coping with an uncertain economy, contact SCORE “Counselors to America's Small Business.”  SCORE is a nonprofit organization of more than 10,500.industry-wide, volunteer business counselors who provide free, confidential business counseling and training workshops to startups and small business owners.  Call the Silicon Valley SCORE at 408-288-8479 for an appointment and help.  We are located at 84 W. Santa Clara Street in San Jose and have a library of business materials.  Also, go to www.svscore.org for even more information.