What to Do When Your Small Business Isn't Doing Well

Back in 2006, when the economy was in better shape than it is now, some 564,900 businesses closed their doors. Given the current state of the economy, chances are very good that the numbers for 2007 and 2008 will be much higher. The combination of the credit crunch, the lack of consumer confidence, the general doom and gloom, plus the rise in prices, particularly for gas, means that many small businesses are hurting.

According to Discover Financial Services, which polled small business owners in February 2008, one-half said their businesses tended to rise and fall with the economy, and a similar number had to cut back on the amount of money they take out of their businesses. Over two-thirds had to reduce their personal spending and felt the economy is getting worse. Four out of ten reduced their business spending and dealt with cash flow problems in the last 90 days.

It can be much worse in certain fields and much, much worse in certain localities. For example, conventional wisdom says that now is not a good time to be selling real estate. That's particularly true in areas that have had more than their fair share of foreclosures.

If your business is hurting, your options depend a lot on how serious your problem is and how long it's been going on. The sooner you face the issues, the better off you'll be.

If You Can Still Pay the Bills
If you're still able to pay the bills, but times are getting tougher, it's time to evaluate your options:

• Increase sales
• Open new avenues of sale
• Decrease expenses
• Get your accounts receivable in motion

Increase Sales
There's a lot to be said for the old adage about how 80% of your business should come from 20% of your customers. Since so many businesses and individuals are in the same boat, this is a good time to meet with your best customers and see what you can work out for and with them. It is a buyers' market in more ways than one, and your clients could just as easily shop elsewhere. What's the benefit – to them – in sticking with you?

Making a personal connection might help you better target your products and services — or give you a heads up as to what's coming down the pike. For example, you may find out that some clients need to make smaller purchases. How can you make it easy for them to do so? Are their needs different because of the economy? How can you address those needs?

Here's hoping you find out that more than one customer is thriving in this economy and can use a lot more widgets if you could only _______________[fill in the blank]. You may not be able to fill in that blank unless you ask.

Similarly, what can they do for you? Can they pay more promptly? Can they recommend you to others? There's nothing like personal recommendations to help move sales along.

You may discover, sadly, that your best accounts are in worse shape than your business is. It's better that you know in advance, especially if it will motivate you to explore new markets. It should also motivate you to get your financial papers in order if they aren't already. Once your best customers fail, you may need to turn to other sources.

While you are still paying the bills is a good time to catch up with your backers, whether that's the local bank or your sister-in-law. Being able to demonstrate where things stand now and what you are doing to keep in the black can help allay anxieties. The last thing you want is for your lenders to lose confidence in you and your business. But they may, so it pays to be on the lookout for additional investors. On the other hand, they may have some good ideas for you.

While it may be tempting to take on a lot of extra credit, that can prove to be dangerous. Your business could appear in worse shape than it is. Do a little reading before you send in that application for a great-sounding business credit card.

PR Can Help Increase Sales
Even if times are tough, chances are good that you and your business have something to teach or share. Become media savvy and help reporters, editors, and producers come up with interesting story angles that feature your business. An article in the local newspaper can give you a sales boost in ways paid advertising simply can't match.

The more you can tie your business to an actual, "real" event in the community or in the news even an upcoming holiday the more likely you are to get press coverage. So dream up a GREAT idea, one you can explain clearly and quickly. Call the local paper and ask for the appropriate section's editor. Or call the local TV station and ask for the correct producer.

Be ready to share a one-page press release that reads just like an article that might appear in the paper. Give it a headline, a few pithy quotes, and a minimum of puff as you explain the who, what, when, where, why, and how of your story. Don't cross the line between informing and advertising; they won't buy it. Make sure to include your name, address, website, and phone number. Get it there -- fast -- while it's still newsworthy.

Try to develop a relationship with members of the fourth estate. That way, if they're looking for a small business owner's perspective, they may think to call you.

Open Up New Avenues of Sale
If you don't already have a website, what are you waiting for? You don't need anything elaborate or costly, just something that's clear and lets people know what you sell. Chances are good that there is a high-schooler nearby who can help you with a basic site, including making sure you get some traffic and sales. Click here for some helpful tips from Uncle Sam and here to explore the benefits of having some of those ubiquitous Google ads on your site once you have one.

There are lots of other avenues of sale on the Web. For example, visit Craigslist and consider how you might make your widgets fly off this site, both near where you live as well as in other parts of the country. At Yahoo Groups, you might find other people in your line of work or in your community who might be interested in what you have to sell and say, plus you may gain some valuable insight from them.

Speaking of what you have to say . . . have you ever thought of having your own blog? It's easy to start one, which can attract attention to you and what you do.

And what about auctions? Have you given them a try? You might be able to unload excess inventory or even your biggest ticket items that way. If you're new to the world of online auctions, you can get some good advice from the Federal Trade Commission (FTC). When you're ready to give it a whirl, you might want to have someone handy around who has already had some experience with eBay.

Decrease Expenses
While you may have your own ideas on how to cut back, if you have employees, it's very important to get their input. There's no benefit to having your staff members feel alienated by the belt-tightening, especially when they are likely to have some good ideas.

Are there any incentives you can offer for cost savings or for new business, for that matter? Is everybody turning off their computers and office lights at night? Brainstorm about other ways you can lower your utility bill. Then call your electric company and see if you can get an energy audit and some tips. Focus on each of your major fixed expenses in this way.

It's smart to talk with your suppliers and insurers about how you can get what you need for less both before and after you comparison shop for everything. Times are tough, and you may be able to get a great deal. If you can get a better price, you may want to simply switch or snitch: See if your current supplier wants to beat or at least match the deal you can get if you take your business elsewhere. Either way, the money you save will be your own!

Bartering may prove to be an easy way for you to cut expenses, and perhaps to move product and get some new clients as well. You can get a sense of how you might benefit from what's happening in bartering today and take a quiz to see if barter is for you. If so, there are many barter networks for businesses, for example, Barter Business Unlimited and the International Reciprocal Trade Association.

Think about whether there are ways for you to share expenses. Can you rent out unused office space? How about storage space or a garage?

If harder times are likely heading your way, start planning for the worst-case scenarios. Are you going to have to lay off some employees? While it's not a fun decision, there is much more as stake than their livelihoods and your own. Your credit and your home may be jeopardized as well.

Unless your business is well established, a lot of its credit rests on your credit. You probably had to give personal guarantees for any loans that you received as well as for your business credit cards. That's true even if you run your business through a corporation or an LLC.

Get Your Accounts Receivable in Motion
Take a fresh look at who owes you money; you are up-to-date on your billing, aren't you? See if you notice any common threads. For example, if your receivables are all with firms that purchase your highest priced product, the one with the greatest profit margin, it may be time to re-think your pricing. You may also have to reconsider who you can afford to give credit to and for how long.

Decide how you can do a better job of getting your best accounts to pay you sooner rather than later. Are there discounts worth offering for early payment? For the chronic late-payers, which ones would be more likely to respond if you made the call or dropped by yourself? No one said you have to like it, but if it's your best shot at collecting what is owed to you, you may not have another choice.

For advice on how to handle your accounts receivable or on other business problems, consider reaching out to SCORE, where you can now get advice by email

You're Falling Behind
No matter how hard you've tried, you are not making ends meet. The bills are piling up, your cards are maxed out, and you don't know what to do. That you are not alone is no comfort. But what you have to do is clear:

• Raise cash
• Slash spending
• Prioritize payments
• Sell off what you can, maybe even your business
• Consider workouts, bankruptcy, and new financing

Raise Cash
If you haven't had a good old-fashioned sale, now is the time. Consider offering special deep discounts to your best customers as well as offering generous discounts to everyone. It may hurt to drop your profit margin significantly, but when widgets sit on the shelf, they are bringing you in nothing.

If you are still sitting on a pile of accounts receivable, you might want to consider selling them to a factor. While you won't get what you are owed, something is better than nothing, especially if you are short on cash. If it is going to help keep the lights on and the credit card bills paid, it may be worth it.

Slash Spending
If you haven't already cut your expenses way back, now is the time. As you move out inventory, don't be quick to replace it. Widgets won't pay the bills. Similarly, as difficult as it may be, if the time has come to lay off some workers, don't put it off. It won't help you . . . or them.

And just to keep the cash flowing, you may have to make new deals with your creditors and suppliers, as well as with the people who owe you money. What can they pay, and how soon can they pay it?

While the thought of getting additional credit may be appealing, if you are already in trouble, that will be hard to do. In fact, some of your current creditors may begin demanding payment. Be ready to show with accurate, timely financials where things stand now and how you plan to keep your business going.

Prioritize Payments
All the small business experts seem to agree that the last thing you want to do is get behind on sending in your tax payments, especially the amounts that you have withheld from employees' pay checks. With so many other competing interests out there for your dwindling dollars, you may have to pick and choose.

One area where it pays not to scrimp is on insurance. Attorney Fred Steingold, author of Legal Guide for Starting and Running a Small Business, offers an important tip to keep in mind in case you might have to go into bankruptcy:
"You're going to have a hard time finding an insurance company that will renew your insurance or issue a new policy. So, you want to try to get some insurance that lasts as long as possible into the future, and that, as long as you keep making the payments on the premiums, your insurance can't be cancelled, and this means that your business assets are protected, and that you'll sleep better at night knowing that."

As if things aren't difficult enough, you need to be aware of "preference among creditors," which is a no-no to bankruptcy judges. If you paid some bills in the year before you filed for bankruptcy, say to your niece, and didn't pay other creditors, a judge might make your niece fork over what you paid her so your spoils can be more evenly distributed.

Sell Off What You Can, Maybe Even Your Business
Aside from widgets, what else can you sell? Do you have any assets you can liquidate? Click here for the SBA's step-by-step advice for exploring this option. It's certainly something you'll need to consider if you are going to close the business, but there may be a way for you to liquidate some assets in an area where sales are weak so you can strengthen other aspects of your work.

Selling the business may be a good choice even if it is not an easy one. Your employees might be likely buyers, which can turn out to be a tax plus to you all if you set up an Employee Stock Ownership Plan (ESOP). You might not even need to sell the entire business to them for everyone to benefit.

Before you make any decisions, find out what your business is worth and consider whether you want a broker to help you sell it.

Consider Workouts, Bankruptcy, and New Financing
It's not easy to get creditors to take less than what you owe or to give you more time to pay up. But if your financial statements back you up, and if you have a clear plan, you may be able to show that they would be much better off by taking less or by giving you more time than by pushing you into bankruptcy or taking you to court. Try to keep your emotions out of any discussions and don't make promises you can't keep. Losing credibility with your lenders will not help your cause.

What if you've had your head in the sand for months? You still have options and you don't have to go it alone! In the same way that there are debt settlement firms to help individuals in serious financial trouble, similar organizations exist to help small businesses achieve financial stability. They can take over the responsibility of negotiating with your creditors and collection agencies. If lawsuits or judgments have already been filed against your business, they can try for out-of-court settlements. An outside professional who doesn't share your emotions, fears, or stress is often in a position to be a better negotiator, and at this point may be your best option.

For example, Franklin Mediation negotiates for lump sum settlements; its fees are equal to one-third of your savings. For businesses that can afford to pay the negotiated amounts, there are no upfront fees. "Fees are not due until a mutually agreeable and legally documented settlement is at hand." Businesses that cannot afford to come up with these funds can enter a monthly payment program.

While you may also want to consider bankruptcy, you may be better off with debt settlement, which may have less devastating and less lasting effects on your credit picture. You have nothing to lose by exploring both alternatives. And who knows? There may be an investor out there who would be happy to supply an infusion of cash, if you can show that it would turn things around.

While times may be tough, as Jim Blasingame, aka the small business advocate, puts it: "There are also resilient elements and strong fundamentals in evidence today that can help us limit the damage. Perhaps more than at any other time, each one of us has the ability to contribute - positively or negatively - to whatever economic condition we experience this year."

With the ideas we've been discussing here, you should be in good shape to make a positive impact on your business's future. Good luck!

Nancy Castleman is Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes about all of these subjects for CreditBloggers.com and Credit.com.