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There goes your coolant; here comes your core…

Running a small business is difficult. No one ever said it would be easy. You sleep less and work harder and that is the part you actually enjoy. Everything else is a struggle.

If your small business is a technology company it just upgrades your nightmares to a different class – your personal nuclear reactor running amok, without the manuals, the help, the PhD in nuclear physics, or the graphite rods. Add a recession or an economic slowdown to the mix and you have just found the one ingredient you didn’t need; there goes your coolant, here comes your core; it is meltdown time.

For all practical purposes economies in the US, Canada, Europe and the Asia Pacific rim are slowing down. Sales cycles have become longer and the three traditional local buyers and sources of growth in our spheres have dramatically come to a halt – financial services, telecommunication and media. Clients are cutting back on capital investment projects and deferring decisions on those that are already in the pipeline. Even closed and sealed contracts are up for re-negotiations – cut your prices or increase the project scope. The question is no longer if the slowdown will have an impact on us, it is how long will this last?

The last time I went through this was eight years ago. Since it was my first official recession as an entrepreneur, I went all the way down to my last pretty penny, and then some, before I understood that you can’t spend your way out of a slowdown.

Here is what the first two quarters of 2001 taught me after I paid US$ 880,000 in tuition.

Lesson number one – Lock away your credit cards and your credit lines

At 36%-40% per annum you might as well borrow from your neighborhood loan shark. More importantly than the rate you can’t afford to pay, a slowdown is about controlling your spending impulses. If you need it bad enough, find the cash for it. If you can’t find the cash for it, you don’t need it.

Related to credit cards are your credit lines with suppliers and vendors. Do a review of your relationships to figure out who will give you 30 – 60 days credit on decent terms and not scream about it. Ask for it, you will be surprised at how many people need your business. Start moving your purchase orders in their directions.

Lesson number two – Clear your payables

If you have outstanding bills, don’t buy any more and use any excess cash flows to clear your payables. The next 12 months are going to be brutal; you don’t want your creditors calling you all hours of day and night. I know this sounds counter intuitive, but pay the bills now to ensure that your lines with your vendor are clear if you need to buy crucial supplies or services 6 months down the road. I would rather have the flexibility to borrow a million dollars mid way through a recession, than owe a million dollars at its beginning.

Lesson number three – Cash is king

Sit down tonight and map out all the cash commitments you have made and the one you will receive. Make sure that you aggressively follow up on collections much before you need them. If you can renegotiate payments and get extended deferrals on your cash commitments, go ahead and do that. One rule of thumb; services gets deferred, goods don’t. Do the reverse on your collections; if you can offer more services in return for immediate collection go out and do that. We ran a special last year for two of our customers and gave them more as long as they paid up on time. Don’t give a discount or deferral on goods, don’t expect one in return.

Lesson number four – Focus on the small fry, not the big fish

The big fish is a bonus. Keep on talking to them and following up with phone calls and visits. But the small fry has a shorter sales cycle and will only switch a vendor if you piss him or her off (read: repeat business). A small fry is also more likely to pay on time and in the time that you are waiting for the big fish to close is a great source of marginal cash. You already have the overhead don’t be too picky about who gets to cover it.

Lesson number five – Manage expectations

The first group that you need to inform about the upcoming crunch is your family. Let them know that things will be difficult; then your employees and partners. They need to be comfortable with the fact that there will be a delay in making payroll and that they will get paid but it will be later than usual. Ask if anyone has an issue on account of upcoming commitments (school fees, car payments, rents and mortgages) and if they do you may want to run payroll twice a month. Half on the first, half on the 14th. (yes the Americans got it right first)

Lesson number six – Look through your product closet

There is stuff in there that can generate cash at short notice. Go dig it up. Think of it as a garage sale. Look at product variations that will sell for cheaper to a segment you didn’t want to talk to before. Look at service offerings around a product that you may be able to sell on a repeat basis. If it will get in a dollar, go do something about it.

Lesson number seven – Come up with a plan

How much cash do you need and how are you going to generate it. It is more complicated than it looks. At first sight in a slow down this is a very depressing conversation. You will have a big plus in expenses and a big (or a small) zero in revenues. That is the reason why you need a plan.

But don’t worry all of us are with you in the same boat. Here is how you do it. Take out some personal time and think through what you would need to do to survive under ideal conditions; then remove the ideal conditions. It will help if you have a few sounding boards to bounce off ideas and partners and team members who can test those ideas.

Lesson number three (Cash is king) is about accounting and record keeping. Lesson number seven is about strategy.

Lesson number eight – Go out and spend cash only if it brings in cash.

If you are absolutely sure that spending a hundred dollars will bring in a thousand, go out and spend it.

Lesson number nine – Pay yourself

At the end of the day if there is something left over after you have covered all your bills, take a bit out for your home. Your mental state and the comfort of your family are closely linked. I am not asking you to splurge on expensive dinners or more expensive cars. Just take out enough to ensure that the people you love are taken care of.

Lesson number ten – Move into sales mode

If there was ever a time for you to be out there selling, that time is now. There is only so much business available for taking when an economy goes down; you now have to fight a lot harder for your share.

Recessionary selling is all about shaking hands and ensuring that people don’t forget you. Don’t dump the most important thing that will make a difference between your continuing existence as an entrepreneur or not to Microsoft outlook or a twisted copper pair. Shine those shoes, warm those hands, go forth and mingle.

And the most important lesson of them all… If it doesn’t kill you, it will only make you stronger. Stay with it and you will prevail.