<p>The volatile markets and the recent difficulties faced by several venerable financial institutions continue to cause anxiety among investors of all types, including small business owners.&nbsp; The key to weathering these challenging times is to find and highlight for your clients and prospects the many opportunities that exist during these recessionary times and support them in making the most of them.</p> <p>Toward that end, here are some tips for you (as a small business owner yourself) as well as insights you may wish to pass on to clients and prospects:</p> <p>In his blog for <a href="http://www.smallbiztrends.com/2008/03/four-mistakes-entrepreneurs-make-in-a-recession.html/_">Small Business Trends</a>, Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, identified four mistakes entrepreneurs often make during bad economic times:</p> <p>1. <strong>Failing to take advantage of decreasing costs.</strong>&nbsp; When demand falls, your suppliers are often willing to provide you with their products or services at lower prices.&nbsp; It is also possible to hire better talent for lower costs.</p> <p>2. <strong>Thinking the only way to increase demand is to cut price.</strong>&nbsp; For most entrepreneurs, lowering prices during a recession is not the answer.&nbsp; Competing on service, quality or something other than price are better strategies.</p> <p>3. <strong>Failing to recognize increased competition.</strong>&nbsp; The need to have a competitive advantage during a recession is more important than during good economic times.&nbsp; Total demand for goods and services decreases so more businesses are chasing less opportunity. In addition, with increased unemployment, more people start businesses.</p> <p>4. <strong>Forgetting that some products, or even whole businesses, are counter cyclical.</strong> The example cited is that in a recession, people might cut back on eating out but they may increase their purchase of less expensive foods such as pasta making it counter cyclical.</p> <p>In response to the article, many of the readers cited "failure to have an effective marketing plan" as an additional mistake.&nbsp; I would add "failure to have a sound financial plan" as another costly mistake that prevents entrepreneurs from achieving their full potential during the down market.</p> <p><strong>Deepen relationships with customers and clients and fully understand why they are customers.</strong> Small businesses should proactively reach out to understand the implications of the economic conditions on customers and use the information strategically to refocus their business plan. Developing an understanding of what differentiates the business from the competition will provide insight into what, if any, adjustments need to be made. If the business cuts back on something seen as unimportant as a cost saving measure, it could inadvertently damage or even destroy the business.</p> <p><strong>Develop a solid relationship with the local banker.</strong> Lowered confidence results in tightened credit, and for businesses seeking loans, this can be a significant impediment to growth.&nbsp; In addition, there will be an increased need for documentation and solid business planning given the current environment.</p> <p><strong>Manage cash flow and the balance sheet.</strong> While the business is still doing well, build up a cushion of reserves to help weather any difficulties in cash flow. Don't allow accounts receivable to get out of control.&nbsp; Start calling customers sooner rather than later to ensure payments will be forthcoming.</p> <p><strong>Think outside the box.</strong>&nbsp; Recessions offer small businesses the opportunity to rethink their current approach and refine operations. Small size allows businesses to be much more nimble and respond to changing conditions providing small firms with a distinct competitive advantage over larger companies. New products or services can keep the business growing during times when older lines are declining.</p> <p><strong>Market, market, market.</strong> Determine what sets the business apart from the competition and market it aggressively. Even during difficult economic times, growth is possible.</p> 2008-10-04T03:04:41Z 2008-10-04T22:57:53Z -17.1622 283 1851 true 1 7390 market-volatility-and-the-small-business-owner 2 2008-10-04T17:54:36Z 2008-10-04T17:54:36Z

The key to weathering these challenging times is to find and highlight for your clients and prospects the many opportunities that exist during these recessionary times and support them in making the most of them.

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