The $787 Billion Recovery Package: How Can Small Businesses Benefit?

After all the politicking, President Obama finally signed into law last week the $787 billion recovery package designed to give a much needed boost to the U.S economy. Contained in the hundreds of provisions and over 1,000 pages of this bill are many opportunities for small businesses. You just need a little patience to sift through it all. To get you started I compiled a summary of a few of the provisions that may benefit many small business owners. (Both the NY Times and the Wall Street Journal have more detailed summaries of the recovery package online.)

  • Increase deduction on capital investments. Businesses can recieve a 50 percent bonus deduction on capital investments made in 2008 that would normally be depreciated over many years. Businesses can choose to accelerate refunds of research and development credits and alternative minimum tax credits in lieu of bonus depreciation.
  • Allow more small business deductions. Allow businesses to deduct up to $250,000 for capital investments made in 2009, with a total cap of $800,000. The limits were temporarily increased by Congress last year for investments made in 2008. Prior to that, small businesses could write-off $125,000 for capital expenditures, with a total cap of $500,000.
  • Delay recognition of certain cancellation of debt income. Allow some businesses to defer tax on income that is recognized when they buy back their debt at a discount.
  • Expand net operating loss carry-back provision for small businesses. Allow small businesses with annual receipts under $15 million to cut taxes by writing off
  • Expand the tax break for small business stock sales. Allow small businesses to exclude up to 75 percent of the gain from the sale of some stock held for more than five years. 
  • Develop business in depressed communities. Increase funding for state-wide programs that provide incentives for businesses to locate in economically distressed communities.
  • Expand use of industrial development bonds. Allow small-issue industrial development bonds for “creation of intangible property” in the next two years. Industrial development bonds are tax-exempt bonds issued by a state or local government to finance manufacturing or production of “tangible personal property.”
  • Incentive for advanced energy investment. Establish a new 30 percent investment tax credit for manufacturers of advanced energy property, which may include technology for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration.
  • Support battery manufacturing. Provide grants to manufacturers of advanced battery systems and car batteries in the United States.

Aside from these provisions, several other provisions may indirectly effect small businesses. Some examples include: improvement in transportation and clean energy initiatives, the repair of facilities on public lands and parks, the repair and modernization of public housing units as well as abandoned and foreclosed homes. Small businesses could benefit by securing government contracts directly or assisting the bigger companies that secure them.

Image credit: Flickr user

8 Reasons Why the Recession is Good for Small Businesses

In the midst of this chilly recession that doesn’t look like it is going anywhere any time soon, there has been a lot of talk about how difficult it is to start, operate and grow a small business. But even the darkest clouds can come with their silver lining. Much emphasis could be made on the unique opportunities that result from such an economic climate. History attests to the fact that from the ashes of recession spring forth new ideas, opportunities, and insight.  

Here are 8 reasons why our economic recession can be a good thing for small businesses:

 1. Businesses are being forced to become stronger and more focused. In the quest to reduce costs, improve efficiency, and increase sales, small businesses are being forced to redefine and refocus themselves. As a result, many businesses are streamlining their operations, improving quality control, and expanding their customer relations.

2. Expansion comes at a discount. Small businesses looking to expand can take advantage of huge discounts in real estate, labor, materials, and stocks.

3. New markets are emerging. A change in the economic climate often signals a transformation in consumer demand and business needs. This shift in demand spells opportunity for anyone who has the foresight and resources to capitalize on it. So a homebuilding company or a cleaning company, for example, could make money refurbishing foreclosed homes, and a restaurant could offer economical menu options.

4. Demand for support will result in better products and services. As small businesses seek to reduce expenses and maintain their competitive edge, they will increasingly rely on various products and services to help them achieve their goals. Think telecommunications equipment and software, SaaS, cloud computing, and a whole range of outsourcing services- all of which should develop and improve in response to the increase in demand.

5. Small businesses are reaching out. Small business owners across the country and the world are joining forces to share advice, support, experiences, and resources. Much of this networking has been made possible via social networking sites and other online communities. Aside from the physical benefits that could come from such collaboration, even the emotional support that can be derived from these communities can go a long way towards helping small business owners and budding entrepreneurs.

6. Relationships with customers will strengthen. In order to hold on to their customers, small businesses are being forced to get to know them better. When businesses are in touch with the needs of their clientèle they are in a better position to accommodate any shifts in demand.

7. Businesses will find creative ways to get financing. According to the Small Business Administration, loans to small businesses have dropped 30% over the last year. This opens the door to the world of alternative financing that ranges from Peer-to-Peer lending and other sources of private equity, to factoring receivables, receiving a business cash advance, tapping private foundations, and even bartering.

8. Less competition from the big guys. Due to sluggish sales, several big US retailers, such as HomeDepot, Circuit City, Starbucks, Ann Taylor, CompUSA, and Foot Locker, have been closing their stores across the country. Put simply, this means less competition and more opportunity for small businesses.

Will Obama’s Inauguration Set the Tone for Small Businesses?

All the pomp and circumstance surrounding the inauguration of Barack Obama as U.S. President underscores a new flurry of business activity that shines like a small ray of hope in our dismal economy.

The San Francisco Chronicle recently reported that numerous entrepreneurs and small business have rushed to capitalize on Obama’s rise to the presidency. Just think about it. There are many angles to promote here. There is the historical significance of a electing the first black president, the fresh promise of change in an economy that has gone stagnant, and you can add to this the fact that Obama is young, photogenic, and charasmatic- all of which no doubt greatly add to his marketability.

But the surge in business goes beyond Obamamania. Several green businesses have already benefited from the environmentally conscious inaugural preparations, and the alternative-energy industry has also experienced a recent boost in investment and sales.

Whether this activity signals a prolonged boost for many small businesses still remains to be seen, especially since many small business owners are wary about Obama’s economic stimulus plan.

But for now at least we can hope…

What do you think?

Image credit: Flickr user 

12 Small Business Trends to Watch Out for in 2009

Whether you’re the kind of person who likes to see the glass as half full or you prefer to see it as half empty, there is no denying that for most American small businesses the new year will bring a mixed bag of opportunity and adversity, hope and anxiety. There are many reasons for the apparent paradox. The up coming year will very much be shaped by the current financial and economic crisis engulfing America and the rest of the world, the beginning of an new Presidential term in the U.S., and the continued evolution and development the Internet, mobile technology, and consumer electronics.

Here is a closer look what small businesses can expect in 2009:

1. The number of small businesses is expected to grow. With the unemployment rate climbing and job security being challenged across the board, many will try their luck with small and personal businesses. A large percentage of this population will consist of Gen Y and Babyboomers.

2. Flexibility and innovation reign supreme. To survive the tough economic conditions, small businesses will need to increase their productivity, efficiency and customer value. This will compel many businesses to be creative in the way they operate and in the products and services they offer.

3. A year of bootstrapping and belt tightening. With consumer confidence at the lowest it has been in years, and many industries effected by sluggish consumer spending, small businesses will need to focus on improving their cash flow, reducing costs, and holding on to their customers.

4. Less legitimate funding for small businesses. 2009 promises to be a hard year for small businesses in need of financing. The banks as well as all sorts of commercial and private lenders are pulling in the reigns when it comes to offering money to entrepreneurs and small companies. Simultaneously, expect an increase in predatory lending schemes and their “barely legal” equivalents, such as payday cash loans.

5. Mobile technology provides necessary tools. Mobile technology will continue to offer small businesses the ability to boost productivity, efficiency, and market outreach in order to maintain a competitive edge and hold on to customers. Expect the continued growth and usage of navigation systems, location-based services, smart phones, netbooks (small notebooks primarily used for Internet access), and a whole slew of mobile applications.

6. Expect cloud computing and SaaS to remain strong. Both cloud computing and Software as a Service (SaaS) offer essential tools that can help a wide variety of small businesses. Cloud computing allows small businesses to remotely manage and store information as well as access customized software or services from virtually any device with Internet access, while SaaS refers specifically to an application that is provided as a service across the Internet. Not only can small businesses access sophisticated and powerful applications that have previously only been available to bigger businesses, but they can reduce their expenditures on software and equipment.

7. Small businesses broaden their use of online marketing tools. Over the past few years, the Internet has opened up a whole new marketing frontier for small businesses. While websites, blogs, emailing, online listings, POI databases, and social networking sites such as Facebook, Twitter, LinkedIn, and MySpace may all sound like “old news,” many small businesses have yet to jump on the bandwagon. But not for long. These online tools will continue to provide small businesses with vital access to current and potential customers and that should win over a lot of “late-comers.”

8. The Government has its eyes on infrastructure. President-elect Barack Obama has pledged to increase federal spending on bridges and roads across America, as well as projects for the development of alternative energy sources, clean technology and education. Several small businesses will benefit directly from the federal spending increase by accepting specialized government contracts, and many other small businesses may benefit indirectly by providing goods and services to large contractors.

9. Consumers turn to bargain hunting. Being extravagant and excessive is loosing its cool. With job security declining, incomes shrinking, and debt running high, consumers are trying to stretch their dollars as far as they will go. Expect this trend to continue in the coming year as the future of the economy still remains uncertain.

10. Still going green. The demand for organic, sustainable, and green products should remain strong in certain sectors. But in addition to caring for the environment, consumers and businesses will be drawn to the “secondary” benefits of cost savings and improved efficiency that many green products have to offer.

11. Old school marketing techniques make comeback. With fewer dollars to spend on marketing, small businesses will turn to the tried and true strategies: building up word of mouth advertising, sending out direct mail and coupons, improving customer service, and offering sample products or free trials.

12. Opportunity knocks. With huge discounts on labor, materials, real estate, and stocks, common business sense dictates that a recession is a good time to expand operations. This idea is supported by the likes of Richard Branson and Warren Buffet (and you can’t really argue with them!). Expect that those who have the means will take advantage of the economic downturn to expand or develop their businesses.

Image Credit: Flickr User

Top 10 Small Business Resolutions for 2009

I recently came across this article in the English Observer that put words to a new cultural and economic reality that is taking shape here in the U.S.:

…The era of individualistic consumption that swept aside the Great Society of the 1960s has come to an end. For three decades, American culture has celebrated the glories of unabashed capitalism and the ideals of the rich. No longer. From Hollywood movies to celebrity culture to television, frugalism is taking hold. Consumers are cutting back… A national belt-tightening is having an impact on everything from restaurants and books to a collapse in the demand for cosmetic surgery. The recession is reshaping the cultural landscape in which ordinary people live their lives.

For many small businesses to succeed in this changing environment they will need to change or improve the way that they operate. With a new year beginning it is the best time for business owners and management to take stock of their business performance in order to plan for the future.

To help get you started, here are my picks for the top small business resolutions in 2009. Some may apply to your business; others may not. But the main thing to keep in mind is that to be successful in this new environment any resolutions that you set for your business should stay within, yet at the same time optimize, your available resources.

1. Make a plan. Before you can make any resolutions, you need to be focused on where you want your business to go. Look for areas of improvement and set realistic goals. Do you need to strengthen sales, improve customer service, smooth out your cash flow, increase efficiency? In the end, your plan will be an outline of sorts for all of your resolutions.

2. Improve communication and collaboration with your employees. Your employees are one of your greatest assets- and you should treat them that way. Not only are they intimately involved in the nitty-gritty operations of your business, but they are often your link to your customers. Invite your employees to offer their ideas, questions, and comments for how they can do their jobs better and how the business can improve. Even if you do not get any implementable feedback, make sure your employees know that you seriously considered their suggestions, and they will automatically be more motivated and more productive at work.

3. Strengthen relationships with your customers. In the current economic climate, customer loyalty is a precious commodity. Make sure that you are checking in with your customers about their experience doing business with you. Their feedback, comments, and suggestions may also help you to provide a better quality and more focused product or service. And like your employees, let your customers know that you considered what they had to say, even if nothing was implemented. You should also try to look for ways to reward or acknowledge your repeat customers.

4. Research and implement cost-cutting techniques. Look for simple and effective ways to reduce expenses. Some examples: 1. Buy energy saving products, such as CFL light bulbs and look into other resource conserving practices. 2. Improve product and supply inventory management so that capital is not unnecessarily tied up in overstocked on unused items. 3. Join a discount shopping club or make joint purchases with other businesses. 4. Look for ways to reduce employee benefits and health care costs.

5. Improve your cash flow. By smoothing the flow of capital in and out of your business, you will be able to run more efficiently and be in a better position to make decisions that can enhance your business, such as whether or not to purchase new equipment. Basically, you will need to take a look at your inventory, your accounts payable and your accounts receivable. In my previous post Keeping Your Business Out of Debt, I included some details on how to improve your cash flow.

6. Make quality control a priority. Make it a point to establish methods of assessing the quality and reliability of the products and/or services that your business provides. Put simply, the greater the quality of the products and the more reliable the service that your customers can get for their money, the more that your customers will want to use your business. Here also it is important to get customer feedback.

7. Pursue creative and low-cost marketing techniques. In two of my recent posts, I outlined several marketing strategies to promote your business without taking a big bite out of your budget. Some additional ideas: attach an informative signature on your outgoing emails, send a press release when your offer a new product or service or if you make an event that involves the community, write online articles for ezines.

8. Seek out advice and support. With a challenging year up ahead, it is important that you build a “support system” that will help you focus, clarify, and actualize your business goals. This support could come from coaches, mentors, hired professional consultants, or other small business owners. For starters, you can check out your local SCORE chapter or Micromentor.org, or join your local chamber of commerce (to connect to other business owners). You could also join an online small business community.

9. Assess your progress. Make sure to set aside a few minutes every week to assess how your business is doing. What you chose to focus on in that time will be specific to your business, but some common areas to look at include: sales and inventory reports, cash flow statements, and ROI on current marketing strategies.

10. Remember to have fun! Running a small business usually involves a great deal of responsibility and and a great deal of stress- especially these days. Knowing how to lighten things up for yourself and your employees is an invaluable tool to improve productivity and build a loyal workforce. If you are a bit challenged in the creativity or sense of humor department, here are some common ideas: planning an inexpensive employee get-together, outing, or event (Why not go to the local park for a potluck picnic or invite someone to give a seminar), running contests that showcase employee contributions, let employees creatively decorate their own workspaces, or play music at work. And for some business humor.. check out this page.

Image credit: nicolas.boullosa 

 

How to Win Over Your Customers in the New Year

If you are like most small business owners, then chances are your ’08 holiday sales were a bit lackluster. But don’t despair. By introducing a few changes in the way you operate your business, you can brighten your outlook for the new year.

As a follow-up to my previous post on creative marketing techniques, here are a few low-cost strategies to develop customer loyalty.

Tip #1: Promptly respond to customer inquiries.

Make it a priority to get back to your customers. When customers feel that they and their concerns are important to you then they will be more likely to give you their business. Even if you don’t have an immediate answer to an inquiry, you should try to acknowledge receiving a customer’s e-mail or voice message within 24 hours, and inform the person that you are looking into the request or already taking action on it.

Tip #2: Make sure out-going correspondence is clear, concise, and professional.

But… it is not enough to just respond to your customers, you must also pay attention to how you respond to them. Voice messages, emails, and letters should be clear and concise. The time for elaboration is either in person or when speaking to someone directly on the phone. Make sure also that any written correspondence is spell-checked and free from grammatical errors, and that the response is relevant to the inquiry.

Tip #3: Look for where you can give a personal touch.

Handwritten notes, special “birthday coupons”, personally addressed and targeted emails, and no-obligation follow-up phone calls, can make a big impression on your customers’ minds and will measurably improve your customer loyalty.

Tip #4: Reward repeat business.

Give your best customers preferential treatment, such as small coupons or rebates as well as flexible payment options.

Tip #5: Seek ways to involve your customers in your business.

Try to get your customers involved in improving and promoting your business. I cannot emphasize enough how important it is to talk to your customers. You can speak to them in person when they come to your business and ask them for suggestions, or you can ask them to fill out a quick questionnaire, or have a suggestion box. Here again follow-up is very important. Even if you do not end up using a customer’s suggestion, you should let him or her know that you considered it. You can also get customers involved in promotion by, for example, having them forward emails to friends in exchange for a discount at your business, or you could run contests for the best logo or T-shirt design.

How Small Business Owners Can Reduce the Stress of Laying-Off Workers

In the face of a glooming recession, much of the business world has adopted a hang on mentality when it comes to their employees. Rather then having to go through the process of loosing and later replacing productive, experienced workers, many companies are doing whatever they can to keep their workforces intact. Currently, the most popular cost-cutting tactics include: establishing four-day workweeks, unpaid vacations, and flexible work schedules along with wage freezes and cuts in pensions and health care coverage.

 

But for many smaller businesses even these tactics are not enough to keep them from letting go of their workers, and that can put a tremendous amount of strain on the small business owner.

In a small business where connections to employees naturally tend to run deeper and are more personal, having to lay off workers can be a painful blow– both emotionally and psychologically. Moreover, having to loose employees can often signal the end of a small business (After all, wearing multiple hats can only happen when their are enough heads to wear them.)

If laying-off employees in your small business seems inevitable, then here are a few tips to help make the process less stressful- for you and your workers.

  • Be open with employees about the status of your business and their job security. It goes without saying that letting go of workers is not an easy situation, and you can expect that your employees may not take the news so well. But the openness will ultimately be appreciated because it gives everyone time to absorb the message and make other plans.

  • Create a game plan. By creating a strategy with clear cut goals and a process of reevaluation you will be left with a greater sense of control and well-being. Basically, you need to determine how your business will operate with a reduced workforce, including how you will spread out the responsibilities among the remaining workers, if your output change or be reduced, and how you plan on using the freed capital to cover expenses?

  • Improve cash flow to spread out or delay layoffs. In some cases, it may be a good idea to try to “comfortably” spread out your employee layoffs or even delay them outright. You could do this by altering your cash flow. If, for example, your business deals with receivables, you may be able access tied up capital by factoring your outstanding bills of sale or applying for a merchant cash advance.

  • Talk to other small business owners. Speaking to others who have experienced what you are going through or who are currently experiencing a similar situation can bring you fresh motivation, insight, and ideas. Either you can speak to any friends and family who own a small business, look up your local SCORE chapter, or join your local chamber of commerce to connect to other business owners. You could also join an online small business community, such as those moderated by the Bank of America, entrepreneur.com, or Cybershmooze.

Image credit: Notions Capital

5 Creative Marketing Strategies That Work

With holiday sales slumping across the board and consumer confidence holding at all-time lows, some small businesses are finding creative ways to keep customers coming and buying. If you are looking for ways to revamp your marketing strategy without straining your budget here are five techniques that work. And as you can see from the examples that follow, for those who are prepared to be creative and maybe even a little off-beat, there could be a big pay off at the end.

1. Will It Blend. Create a viral marketing campaign consisting of catchy articles, blog posts, or videos.

Blendtec has been promoting the power and versatility of its line of blenders in a popular series of infomercials featuring Blentec founder Tom Dickson blending a host of unlikely items including: golf balls, an iPhone, the Wii remote, credit cards, and the McDonald’s Extra Value Meal. There are also videos featuring attempts to “blend” the writers strike or the political parties.

2. Heart Attack Grill. Find a way to use even bad publicity to your advantage.

The Heart Attack Grill was founded in 2005 by “Dr.” Jon Basso who unabashedly promotes his restaurant’s unhealthy menu. The Heart Attack Grill offers burgers called single, double, triple, or even quadruple bypass (depending on the number of beef patties), beer, hard liquor, regular soda, unfiltered cigarettes and french fries cooked in pure lard all served by a scantily clad staff of “nurses.” What could be better?

3. The Million Dollar Homepage . Find creative, low cost ways to to use widely available material and mediums to advertise your business: think body art (logo hair cuts, hand-stampers, fake tattoos), logo projectors, or…

Check out what one clever entrepreneur did. He created a page with a 1,000,000 pixels, and charged people a dollar per pixel to advertise. Not a bad way to earn a quick million!

4. Bottled Water Marketing Campaigns. Create a brand distinction even when the differences are small or nonexistent.

With high profile endorsements and grandiose claims about their product’s purity and contribution to good health, bottled water producers have successfully created a distinction between natural mineral water versus tap water in the minds of many consumers. And this image has persisted even as several bottled water producers were exposed for fraudulent claims.

Today, bottled water producers are further buffing up their brand distinction by supporting a variety of green initiatives even differentiating themselves from soft drinks.

5. The Mentos/Coke Geyser Video Contest. Get your customers involved in promoting your business. Request personal videos from your customers that show them using your products, giving them as a gift, or shopping at your store. Run contests for the best logo or T-shirt design or the best commercial.

A recent Mentos/Coke geyser video contest in conjunction with YouTube brought 150 contestants. Now there are about 10,000 videos with this theme. The contest also set off a viral frenzy as the videos were shared among countless people.

Soothing the Health Care Headache: 9 Ways to Reduce the Cost of Health Insurance

As our economy sputters along, the issue of health care has become a real headache. With the cost of health insurance on the rise amid a general push towards bootstrapping and business restructuring, businesses big and small are struggling to provide a decent plan for their employees, and those who have recently lost their jobs are coming to terms with the fact that they have lost their health benefits as well.

While health care reform is desperately needed, the appropriate change will have to be drastic and extensive involving many players such as the Federal Government, the health insurance industry, health care providers, and major hospitals. And the painful truth is that such change may be very far off.

In the mean time, there are several ways that you can cut your health insurance costs for yourself and your employees without giving up your coverage. Here are a few tips:

1. Be an informed consumer. Whether shopping for the lowest health insurance rates or looking up medical and hospital information, doing your research before making decisions can increase your chances of lowering your health care costs. To get several quotes online, check out eHealthInsurance.

2. Rely on the coverage of your employed spouse. An independent small business owner may have the option of employing his or her spouse. Certain medical expenses, such as premium costs, co-pays, and prescription drugs, can then be claimed as tax deductible under a health reimbursement arrangement (HRA).

3. Lower your level of health insurance coverage. By increasing your plan’s deductible amount, your monthly premiums will be lower, and the savings in monthly premiums could end up being more than what you spend out of your pocket. But keep in mind that for this option to work you should be basically healthy, and be careful that the out-of-pocket expenses are small enough for you and your employees to handle.

4. Set up a health savings account (HSA). An HSA is tax-free savings accounts for medical expenses. Both employees and employers can contribute to the account, and it must be coupled with a high-deductible health plan. With this method, the policy holder gets the necessary insurance coverage, while the HSA provides the means to fund the additional out-of-pocket costs on a pretax basis. The money in HSA can be carried over from year to year, and it is portable.

5. Offer a flexible spending account (FSA). A FSA allows you and your employees to set aside pretax dollars through payroll deduction to pay for eligible medical expenses. Unlike the HSA, however, the funds in this account do not carry over.

6. Live a healthy lifestyle. Seek free or low-cost advice on maintaining a healthy diet and following an exercise plan. Encourage your employees to attend wellness seminars and to avoid or reduce unhealthy habits, such as smoking. Take advantage of free health screenings at local clinics, hospitals or health fairs. In the end you will feel better, and that could mean fewer trips to the doctor.

7. Join a discount health benefits program. For a small fee these programs offer savings on prescription drugs, dental visits and other health services by connecting members with affiliated doctors, dentists, and health centers. In this way, a health benefits program can fill in any gaps in coverage from your existing health insurance policy.

8. Enroll in a group health plan. Small group health insurance plans cover between two and 50 employees, and the larger your group, the lower your premiums will be. Small businesses with only a few employees and self-employed individuals have the option of creating a group purchasing alliance with other small businesses and individuals. You can locate a purchasing coalition on your state Department of Insurance (DOI) website. (A list of state DOI websites can be found here.)

 9. Find a Subsidy. Low-income individuals and households or those with a disability, may qualify for low-cost health insurance through a state or federal program such as Medicaid or Medicare. Households that have children under the age of 19 should further look into the State Children’s Health Insurance Program, or SCHIP. Families who earn too much to qualify for Medicaid may still qualify for SCHIP. For little or no cost, SCHIP covers doctor visits, immunizations, hospitalizations, and emergency room visits. For more information, check out the Insure Kids Now web site.

Image credit: RogueSun Media 

Keeping Your Business Out of Debt

As I scan the media these days, I often come across the personal accounts of people who were drowning in debt yet were able to pull themselves out and make their way towards financial stability. Since these people tend to be representative of the “average Joe,” the display of resilience and discipline is particularly inspiring.

But what about all the small businesses out there who are also struggling with debt? With consumer sales slumping across the board (yep, it’s official… we’re in a recession!), many small businesses are feeling the pinch.

And words such as, “debt consolidation,” “business restructuring,” and even “bankruptcy” are being thrown around like used tissues, without enough emphasis on what they mean for you and your business and without a clear way of evaluating your options.

In my experience, a small business’ financial stability can often significantly improve simply by making a few, relatively small changes in the way it operates. These changes broadly fall into one of three areas: cash flow, operating budget, and what I will call “outreach.”

Here are a few suggestions on how you can reduce expenses, increase efficiency, and cut back your debt.

Focus # 1: Your cash flow

Your cash flow is the flow of working capital that is taken in and given out of your business. It is effected by your accounts receivable, inventory, accounts payable, capital expenditures, and incurred debt. One of the biggest reasons why small businesses fail is that they are not paying enough attention where their cash is either going or being held up. The result is that they fail to recognize and react to an impending cash crisis. Here are some tips to improve cash flow:

  • Use software to help manage your business. Many accounting software packages offer a full range of features, such as financial reporting, payroll management, and billing. Popular options include: Quickbooks or Peachtree. You can also check out the free open source programs, such as GnuCash and TurboCash. Facility management software or scheduling software such as PeopleCube can also help improve budgets, increase efficiency and reduce costs.

  • Create a monthly cash flow schedule. Many of the factors effecting cash flow, such as outstanding accounts receivable or inventory, do not show up on an income statement. A cash flow schedule is specifically designed to give you a clear picture of each component of your business and how it effects your cash flow so that you can project a future cash shortage.

  • Look for ways to improve billing and receivable income. Make sure your bills are sent out on time and that late payments are accurately tracked. You can require that customers make an initial deposit when an order is taken, and offer small discounts to those who pay their bills quickly. You can also direct hard to collect receivables to a factoring company.

  • Know where to get temporary financing. Set up a business line of credit or apply for a business cash advance so you always have access to capital when you need it.

  • Track your flow of inventory. A lot of capital can be tied up in overstocked or unused products and supplies.

  • Stay on top of your bills. You can negotiate with vendors for payment in 30 days or more and pay towards the end of the term.

Focus #2: Your operating budget

Take a look at your budget to see where you can cut costs and increase efficiency. Even minor changes may add up to big savings in the long run. Here are a few suggestions:

  • Equipment purchases: Consider equipment leasing and financing instead of purchasing your equipment outright. You can alternatively buy second-hand or reconditioned equipment.

  • Taxes: Make sure that you are maximizing your tax deductions. For more information, read this article, and here’s another.

  • Outsourcing: Some jobs can be done more effectively, efficiently, and cheaply by people outside of your business. Popular jobs to outsource include: managing and creating web content, designing and writing marketing material, and handling minor administrative tasks, such as, data entry and answering phone calls.

  • Bringing work in-house: On the other hand, modern technology is making it possible for small businesses to tackle jobs that were usually either handled by outsiders or by people specially trained for the task. For examples of this, check out bMighty.com’s Server How-To Center or HP’s line of low budget equipment and tools that allows small businesses to create professional-looking printed material.

  • Business travel: Rely on telecommuting and webconferencing where possible. Search online for deals on cheap flights and hotel rooms, and be prepared where you can to be flexible. Alternatively, you can hire a travel consultant to do the work for you.

  • Conserving resources: Bring in energy-efficient products, such as CFL light bulbs and energy star equipment. Incorporate resource-saving practices such as, shutting down computers when not in use, printing double-sided pages, using time switches for lights and air conditioning units, using GPS when traveling on the road, and not letting vehicles run idle.

Focus #3: Outreach

This area is a combination of marketing, with a focus on customer satisfaction and customer feedback. One thing that many small businesses have over their bigger competitors is the personal relationship they can maintain with their customers. Do not overlook this vital asset! Not only will it help you to increase sales, but it can help you to operate more productively.

  • Focus on quality. The integrity of your products and services will form a lasting impression on your customers and can go a long way towards building customer loyalty.

  • Ask customers for suggestions. Actively ask your customers for suggestions or improvements via surveys or personal conversations and then follow through on anything that can be implemented.

  • Bring in CRM software. Several open source Customer Relationship Management (CRM) software options exist for small businesses, such as Compiere and SugarCRM. These applications allow your business to effectively manage and access your customer information and to use it to develop your customer relationships.

Image credit: faungg