If your company takes the time to write an annual business plan, pull the 2008 report from your filing cabinet and take a look at it. In all likelihood, what you wrote last November/December isn't even close to what you are dealing with today. If you've been keeping tabs on your plan, making the necessary changes along the way, it probably looks more like the scorecard from a 19 inning baseball game than a business plan.
So much has happened this year in the world of small business. Below are five factors that have put most of us in the financial dilemma that we are in right now:
Tighter credit lines - It started last fall, when banks began to quietly pull back their lines of credit to small businesses. Without so much as a peep, companies that relied on $100k, $200k or $500k lines of credit to ease the changing tides of their cash flow suddenly found the financial rug pulled out from under them. In addition, credit card companies drastically lowered credit limits on business cards to "reduce their risk exposure" in the small business market. The results have made finding money much harder for business owners, coupled with higher than normal interest rates (for those lucky enough to be approved for such loans/lines of credit).
Hidden costs of doing business keep going up - Gas, energy, insurance, overnight delivery service, travel and paper are just a few of the everyday costs that hit business owners hard this year. Take a look at your forecasted expenses for 2008. In all likelihood, the actuals are much higher than what you projected at the end of last year. Unfortunately, this is only part 2 of the story.
Sales are down - It makes sense, right? Money is tight, expenses are up. Time for consumers to stop spending on anything other than necessities. This past summer, the word staycation was coined to identify people who chose to stay at home and do things locally because of the high costs associated with summer vacations. When you look at your business plan, sales are probably down from your initial projections for 2008. The new accounts you projected never materialized and/or the increased business from existing customers went away. If this isn't the case, congratulations! You are one of the lucky ones.
Slow paying customers - As we get older, people talk about 40 years old as being the new 20 and 50 being the new 30. In A/R terms, Net 60 is the new Net 30 and Net 90 is the new Net 45. When did our customers decide they could start treating us as their second bank? Business owners nationwide report that slow paying customers are one of the main reasons they are in financial distress. Unfortunately, it only adds to the company's woes as many business owners cannot add interest charges to their customer's accounts for fear of losing that customer altogether. In a double whammy, these same small business owners ARE being charged interest for late payments on their accounts. The span between A/P and A/R is getting wider and wider. Companies that specialize in "factoring," where receivables are sold at a discounted rate, are growing in almost every part of the country.
Credit scores go down - Banks put your company in the "at risk" pool; you can't get a new loan/line of credit - This is the result of parts 1-4. What once was a growing, thriving entrepreneurial company suddenly finds itself behind the financial 8-ball. Even with a detailed business plan loaded with contingencies, how could today's small business owner foresee the perfect storm of 2008?
The federal government voted on a $700 billion plan to bail out the large financial institutions that made bad bets and now find themselves at the edge of an abyss. But, what about small businesses? Are we simply too fragmented a market to have enough leverage to garner political attention. What if they spent $450 billion on the big businesses and $250 billion in a dedicated fund to help loosen the choke hold on the small business market?
The government is relying on the resiliency of entrepreneurs to "find a way" to survive until the economic tides turn. This is a dangerous game as we all find ourselves in uncharted waters. Advice to fellow entrepreneurs--whatever you do, keep paddling! And may the winds of good fortune fill your sails until the sun shines again.
Source: http://www.observertoday.com/page/content.detail/id/512110.html
