Stay in business even through tough times with these simple, quick steps to small business survival. Small businesses are vulnerable in tough economic times. Undercapitalized and with little experience coping with the legal and practical issues that come up during recession, many businesses fail as their profit margins drop and clients pay late -- if at all. Save Your Small Business, written by a business owner who has survived three decades of challenges and economic downturns, provides 10 no-nonsense strategies designed to protect your personal assets from creditors and survive the current recession.
“In Nolo you can trust.” the new york times 10 CRUCIAL STRATEGIES Save Small Business Your Free Legal Updates at Nolo.com Attorney Ralph Warner and Bethany K. Laurence, J.D. to survive hard times OR CLOSE DOWN & MOVE ON stop the red ink now! NOLO ® Dear friends, Since 1971, Nolo has worked hard to help Americans get a fair shake from the legal system. How? By producing books, software, forms and a website that translate legal jargon into plain English, off er clear instructions for routine tasks and break down complex systems into easy-to-understand components. All of our publications are relentlessly researched and tested by a dedicated group of in-house legal editors. And when we come out with a new edition, you’ll know that it’s been thoroughly updated. ere’s a reason why Nolo is not only the nation’s oldest, but also the most respected provider of legal information. 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N O L O Your Legal Companion “In Nolo you can trust.” —THE NEW YORK TIMES We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea— consult an attorney licensed to practice in your state. Please note Save Your Small Business 10 Crucial Strategies to Survive Hard Times or Close Down & Move On Ralph Warner, J.D. & Bethany K. Laurence, J.D. FIRST EDITION JULY 2009 Editor MARY RANDOLPH Cover and Book Design SUSAN PUTNEY Proofreading ROBERT WELLS Index MEDEA MINNICH Printing DELTA PRINTING SOLUTIONS, INC. Warner, Ralph E. Save your small business : 10 crucial strategies to survive hard times or close down & move on / by Ralph Warner & Bethany Laurence. 1st ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-1-4133-1041-2 (pbk. : alk. paper) ISBN-10: 1-4133-1041-9 (pbk. : alk. paper) 1. Small business Management. 2. Business planning. 3. Business failures Prevention. I. Laurence, Bethany K., 1968- II. Title. HD62.7.W376 2009 658.4'012 dc22 2009011899 Copyright © 2009 by Nolo. All rights reserved. e NOLO trademark is registered in the U.S. Patent and Trademark Office. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Nolo, 950 Parker Street, Berkeley, California 94710. Acknowledgments is book wouldn’t have been possible without Toni Ihara’s assistance, encouragement, and good ideas. We are also indebted to a number of businesspeople who generously shared their ideas and experiences, including Chuck Drulis, Laura and Kiran Singh, Rich Stim, Lori Clawson, and Kay Klaczynski. Stephen Elias, author of Nolo’s How to File for Chapter 7 Bankruptcy, provided big assistance in reviewing our debt and bankruptcy materials, as did Terri Hearsh in checking our financial calculations. And finally, and most importantly, our Nolo editor Mary Randolph did the inspired nipping, tucking, and reorganizing necessary to make our manuscript truly shine. Table of Contents Your Small Business Companion 1 1 Can You Save Your Business? 3 Stepping Back to Plan for the Short and Long Term 4 Selling Your Business 7 Putting Your Business in Hibernation 8 Saving Your Business 9 Special Considerations for Different Kinds of Businesses 12 2 Don’t Ignore Bad News 25 Why You Can’t Wait 26 Cut Costs, Change Direction, Quit, or Sell 28 Decide How Much to Cut Expenses 34 Act Slowly to Reverse Cutbacks 35 3 Control Your Cash Flow 39 Keep Paying Your Bills on Time 41 How to Create More Cash 45 What Not to Do 66 4 Minimize Liability for Your Debts 69 Are You Personally Liable for Business Debts? 71 Liability for Jointly Owned Debt 74 What Can Creditors Do If You Don’t Pay? 79 Prioritizing Debt Payments 88 Staying Out of Deeper Trouble 95 How to Protect Yourself From Further Personal Liability 96 5 Concentrate on What’s Really Profitable 103 Getting a Quick Profits Plan on Paper 105 Making Money in a Service Business 107 Making Money in Retail or Manufacturing 113 6 Innovate on a Shoestring 117 Invention 120 Copying 123 Serendipity 126 Making Innovation a Continuous Process 129 7 Identify Your Customers 141 Aiming at the Bull’s-Eye 142 Filling in Your Target 145 8 Don’t Waste Money on Ineffective Marketing 153 Market the Right Products or Services to the Right People 154 Don’t Spend Big Dollars on Advertising 158 Ask Long-Term Customers for Support 161 Encourage Customers to Recommend Your Business 163 Use Paid Listings Effectively 167 Market on Your Own Website 169 Hold a “Trying to Stay in Business” Sale 172 9 Handle Layoffs Fairly—And Keep Your Best People 175 Making a Wise Layoff Plan 177 e Logistics of a Layoff 179 Keeping the Great People You Hire 185 10 Don’t Work Too Much 201 e Importance of a Sane Schedule 203 How to Work Less and Make More 208 11 Work With Your Best Competitors 213 Treat Competitors With Respect 215 Getting Business From Competitors 217 Working for Your Competitors 218 Working With Your Competitors 219 [...]... the time and desire to help • SCORE, a nonprofit organization that provides free in-person and online mentoring to small businesses Check out what they offer at www.score.org It’s best to approach each potential mentor personally and explain that your goal is to have a group of objective advisers who will meet with you periodically to review your business and financial plans If you’ll need a considerable... will emerge from the economic downturn stronger and better positioned to thrive Here let’s look at your main options: selling, hibernating, or hanging in there until better times return If one of them will work for you, you won’t have to close your doors Stepping Back to Plan for the Short and Long Term As a crucial first step toward creating a survival plan, your business’s key stakeholders should take... contradictory array of business and personal issues, it will help clarify matters if you think about how to proceed over the short, medium, and long term Short term: one to six months In the short term, your job is to either develop an objective and realistic plan to get the business back to breakeven or, if that’s not possible, to close or sell it In general, you shouldn’t allow losses to accumulate beyond... residential and commercial construction severely contract At the same time, payments to J&B for cement jobs begin to slow down as everyone from prime contractors to several municipal governments begins to hoard cash Out of loyalty to longtime office workers and estimators, J&B is slow to cut overhead, hoping against hope that, as it always had, business will soon pickup As a result, monthly payments for rent,... question, in the middle of an economic meltdown, it can be tough to take the time to plan But just as you’ll never grow a garden by pouring more and more water onto sand, you won’t turn around a failing business simply by working 15 hours a day and worrying the other nine To decide whether or not your business has a future, it’s absolutely essential that you separate your personal hopes and dreams from your. .. sealants to the commercial construction industry may simply no longer be viable if local construction all but stops, and an importer of handwoven Indonesian fabric may go under if decorators are no longer willing to pay its premium price But, if despite a short-term sales decline, yours remains a viable field, here are the survival strategies you’ll want to consider Quickly reduce overhead to fit your. .. entrepreneurial experience to understand your profit -and- loss statement and to review and challenge your survival plan (More about who to enlist as your advisers in Chapter 1.) It’s tough to run your own business during an economic meltdown But just as in the Great Depression, in the next months and years, millions of entrepreneurs will figure out how to successfully accomplish it, and by doing so will put... preserves your dignity, your business relationships, and your personal assets and lets you move on to the next venture C H A P T E R Can You Save Your Business? Stepping Back to Plan for the Short and Long Term .4 Selling Your Business 7 Putting Your Business in Hibernation .8 Saving Your Business 9 Special Considerations for Different Kinds of Businesses 12 Retailers... to accumulate beyond six consecutive months The only major exception to this rule is when a clear-eyed investor is willing to put new money into the business under a long-term turnaround plan Medium term: six to 18 months If you can make the cuts necessary to get back to breakeven in six months, you’ll need to return your business to profit, usually through a combination of more cost cutting, adopting... need to adopt a series of business-enhancing innovations To plan for the short-, medium-, and long-term future of your business, you need to do some basic financial work First, complete a profit -and- loss statement and a cash flow analysis (The appendix tells you how.) Second, read the rest of this book with special attention to the chapters on innovation and marketing And third, run your conclusions . Competitors With Respect 215 Getting Business From Competitors 217 Working for Your Competitors 218 Working With Your Competitors 219 12 How to Close Down Your. SOLUTIONS, INC. Warner, Ralph E. Save your small business : 10 crucial strategies to survive hard times or close down & move on / by Ralph Warner &