CCS Blog

Ten Tips for Small Business Owners During Tough Financial Times

by Jim Martin

Each time the US economy slows, small business owners face tough financial times, many for the first time. Financial problems consume time and valuable business resources, but they must be resolved proactively. Many small business owners under-utilize the resources provided to them by their banker The American Banking Association has provided ten tips for using their members more effectively.

1. In tough times cash is king. Carefully examine every capital purchase that will increase your debt. Ask whether the expenditure will generate the cash flow needed to pay for itself. If it can’t create enough new cash to pay for itself over a reasonable period of time, defer the purchase.

2. Let a budget be your financial road map. You fly in the dark financially if you don’t have a budget for all income and expenses. A budget helps you direct the business, and it must be updated frequently. Track personal expenses as well, as they can become an invisible cash drain.

3. Objectively examine your business’ financial position and performance. Are you maximizing the return from your investment? If not, why not? Are your non-business assets generating a maximum return? Can you sell assets that are not contributing to the financial health of your business? Remember: in tough times, survival is the goal.

4. Examine how your debt is structured. Are your long-term and short-term debt balanced? Can you increase long-term debt to reduce short-term debt? You may be able to increase your monthly cash flow by spreading out your short-term debt over a longer period. Be cautious when taking a loan against long-term assets like real estate. If you’re going to use your long-term equity, make sure the need is critical.

5. Prepare for a financial review with your banker. Have current inventories, cash flows and balance sheets ready for your banker. Provide the information needed. Bankers often spend time with customers looking for misplaced information rather than resolving important issues. If you have financial problems, put your thoughts about how to resolve them on paper so your banker can review them with you.

6. Ask your banker about the Small Business Administration (SBA) guaranteed loan programs. Your banker may be able to restructure your business debt over a longer period if the SBA is willing to provide a credit guarantee on your loan to the bank. If your business is located in a qualifying rural area, your business may qualify for a Business and Industry Guaranteed Loan from the Department of Agriculture’s Rural Development Agency. Many states also offer financial and technical assistance to small businesses. Your banker is a good source of information about additional financial resources available to you.

7. Review hazard and fire insurance coverage. Raising deductibles will lower your premium. Review every item on your inventory list and drop coverage on obsolete or low-risk items.

8. Carefully examine your life insurance policies. Many whole life policies contain provisions that allow you to borrow against the cash surrender value at low rates or allow you to deduct the premium costs from the cash surrender value. What type of life insurance do you have? Is it worthwhile to maintain a costly whole life policy when you could get similar coverage from a less expensive term policy? Of course, you should never be without life insurance. All key personnel in the business should be covered so that the business can continue in the absence of any specific member of the management team.

9. Deal with financial problems immediately. When an issue arises that impacts your cash flow, be proactive. Talk to your banker early and often. A good way to avoid serious financial problems is to identify and resolve issues early. Though discussing financial difficulties may be uncomfortable, many problems are best resolved by a team. Create a personal “board of directors”, comprised of people you know and respect, who can be your sounding board. Make sure your banker is a member.

10. Maintain a clear perspective. One of the best ways to think through business problems is to get away from them. For example, take a weekend off—and not just to attend a trade show—or resolve to see at least one movie before it comes out on video. However you do it, putting your concerns aside temporarily and shifting your focus to other activities will make your home team and business stronger.

We thank the American Banking Association ( for these suggestions, but we need to add one more. Get yourself a SCORE mentor. A SCORE mentor can not only help you resolve many business problems, he or she will be able to tell you when you need expert help and when you should be able to solve the problem yourself.