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Ten tips for small business owners during tough financial times

When the economy is slow, small business owners struggle to survive, many for the first time. Financial problems consume valuable time and business resources, yet must be dealt with proactively. Use the resources your banker provides; he has the expertise and cares about your business and its financial well-being. Once you have read these tips and you think you need help, call your banker and ask for advice.

1. In tough times cash is king. Have a close look at every purchase you need to make, and decide if it is worth the money. Will the product generate enough cash to pay for itself? If not, don’t buy it.

2. Let your budget show the way. Without a budget you will find it difficult to cope with hard financial times. Adapt it regularly and do the same with your personal expenses. If you don’t keep track of expenses, they will become a bottomless pit into which all your cash will disappear.

3. Look at your business’s financial position and performance objectively. Do you get maximum returns from your investments? Could you sell those that are not making you money? When times are hard, survival is the only goal.

4. Examine how your debt is structured. If you have an imbalance between short term and long term debt you should restructure your long term debt so that you can pay back the short term debt over a longer period. Be careful not to take a loan against long-term assets, except if you are in critical need of money.

5. Prepare for your meeting with your banker. Make sure you have all cash flow and balance sheets and inventories at hand for your banker. That will make your review time more productive. Write down any ideas regarding your financial position and discuss them with your banker.

6. Ask your banker about the Small Business Administration (SBA) guaranteed loan programs. Your banker could be able to restructure your business debt over a longer period if the SBA is prepared to provide a credit guarantee on your loan to the bank. If your business is situated in a qualifying rural area, you may qualify for a guaranteed loan. Ask your banker about any additional resources which may be of use to your business.

7. Review your insurance coverage. Increase your deductibles and your premium will decrease. Items that are low-risk or obsolete should be removed from your inventory list.

8. Examine your life insurance policies. Some whole life policies have provisions that enable you to borrow against the cash surrender value at very low rates, or you could deduct the cost of the premiums from the cash surrender value. Determine whether your life insurance is worth the money or whether you couldn’t get by at a lower cost. Make sure all key personnel in your company have life insurance so that business can continue in any of the key players’ absence.

9. Deal with financial problems immediately. As soon as a financial problem arises, deal with it immediately. Keep your banker informed of any problems and make him part of your inner circle of confidants. Use your team as a soundboard to discuss financial difficulties and brainstorm solutions.

10. Get some perspective. Sometimes you need to get some distance from your work to solve the problems. Take a weekend off or go and watch a movie – whatever you do, leave your worries behind for a short while and focus on something else – it will make you and your business a lot stronger.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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