About This Case


8 Oct 2008, 11:59PM PT

Bonus Detail

  • Top 1 Qualifying Insight Earns $200 Bonus


2 Oct 2008, 12:00PM PT


  • Advertising / Marketing / Sales
  • Consumer Services / Retail Industry
  • Finance
  • Government / Politics / Global Issues
  • Hospitality / Leisure / Hotel
  • Human Resources
  • Internet / Online Services / Consumer Software
  • Start-Ups / Small Businesses / Franchises

The Financial Crisis' Impact On Small Business


Closed: 8 Oct 2008, 11:59PM PT

Earn up to $200 for Insights on this case.

Following the discussion on Techdirt about the financial crisis, American Express wanted to sponsor a Techdirt Insight Community Case to facilitate a larger conversation about how this impacts small businesses, and what they can do during this crisis. To kick it off, we've written another post on Techdirt and on American Express' OpenForum blog, about how the financial crisis might impact small business, but we want to hear from you, based on your experiences, recommendations and perspectives as owners, workers or partners of small businesses.

As a conversation starter, you can discuss whatever you want about how this current financial criss might impact small business and how they can and should deal with it. Here are some topics that could be worth covering:

  • What are the implications of the current economic crisis for small businesses?
  • How can you plan to survive this crisis?
  • What advice do you have for others in your shoes?
  • What do you do if your bank goes under?
  • What steps can you take to protect yourself from the impact of the wider market?
  • What does this mean about your small business?
  • What is next for the overall economy?
The best insights will get posted to the American Express OpenForum blog as well.

This case uses the "claiming" system. You can claim a slot and reserve that spot for yourself, guaranteeing payment if the response actually does meet the guidelines laid out in the case description. Any insight that is selected to then be placed on the American Express OpenForum blog, also will be designated a "top insight" and the authors will be granted the additional bonus on top of the guaranteed claim amount. Please be aware that claiming a spot, but failing to submit an insight will lead to a poor rating.

10 Insights


You can feel the bad news or look for the good news. I choose to look for the good news.

In the last downturn of 2000/2001, I decided to slow my business down and take the opportunity to grab hold of personal time and do something for myself and my family. I moved down to a four day working week (still more than ten hours per day) and spent time doing things on my personal list. In particular, I spendtime studying a new skill by extending my qualifications.

Sure, I had less money and it was tough, but when the market picked up in 2002/2003 I was positioned to increase my revenue, increase my business and ready to ride the economic growth. More importantly, I was completely refreshed from a quiet period and with shiny new skills to grow my business. It paid off handsomely, I rode to top and made more money than ever before.

The second piece of good news is that I planned for this economic failure. It was clear that there was going to be a major economic problem about eighteen months ago, and thats when I started increasing my cash reserve and tightening my costs. I didn't know when or how bad, but when the newspapers consistently talk about a "correction", and commentators also agree, you know it's really going to happen in the next couple of years.

So now I have a pile of cash ready to tide me over this time. I will still fret and worry about the downturn as I spend that cash buffer, but I am going actually be comfortable through this time.

When this downturn comes to an end, I will be planning to increase my cash reserve again. Maybe not for the first six months, but my business plan will have the "economic downturn of 2012" (or whatever its going to be), and I will be reserving cash in the years ahead. I can be sure that its going to happen, and I feel positive that I will be ready for it.


I run a 7 year-old small business that does two main activities: Strategic consulting and we also manage a regional association for telecom professionals.

The current crisis for small business is not yet at a critical juncture. Of course the most immediate concern is access to short-term credit to meet cash flow shortages, but so far SMBs have been mostly insulated since the biggest carnage was on Wall Street itself. Usually when people say "carnage on Wall Street", they mean the stocks of US companies in all sectors dropped, so the Wall Street indices dropped. This time, it's the stock prices of the actual banks that have nose dived, while the indexes are suffering too. But the carnage is the failed banks themselves, and I don't think most people are aware of the difference.

Considering how the crisis has impacted SMBs, and my business in particular the following thoughts paint the picture:

  • We have been insulated so far, because the repercussions and ripple effects have not yet made their way through the economy to the majority of consumer or B2B business purchasing decisions. This may or may not happen, depending on whether confidence and liquidity are restored or not. Small businesses that operate in high-value items (cars, spas, renovations) or course, pay the piper early.
  • Given the uncertainty, we have evaluated our cash position, and are increasing our holdings, reducing some optional expenditures, and trying to increase the amount of work/revenue that we get right now. A bigger buffer is our goal. Consistent with the above bullet, we haven't stopped spending in a panic, but we are cutting back.
  • We were considering moving the business to a larger location, but put all that planning on hold until the credit markets regain stability.
  • We were wise enough to secure lines of credit years ago, even though we did not need them. I assume that I can thus tap into this credit as needed, without the difficult task of asking for a loan in case our cash is exhausted.
  • We have considered, and planned for the possibility of a sustained economic downturn. Although we don't think it likely, radical cost cutting will be the next step, followed by layoffs if absolutely necessary.
  • We are not concerned about holding cash in our bank, due to remaining confidence in the FDIC.
  • Our personal portfolios are hurt, but not devastated. Bank valuations have dropped like bricks, but a diversified portfolio is looking thin, but surviving.
  • Essentially, we are in good standing, have a disaster plan, and should be OK if the problems remain at the scale they are right now. If we fall into a depression, or the economy grinds to a halt, we'll be doomed just like everyone else. We need to work for a living and to make payments. No work, no money.

So now we have to consider what's been called a bailout for the big banks. You've all heard the "privatize risk, socialize loss" argument, so I'll skip it but acknowledge that its true. That said, certain businesses are "too big to fail". I don't actually think airlines or car makers fit into this group. Let the market handle their failure - take out the national pride about domestic ownership of the local auto industry, and the decision is much easier. But when it comes to our investment banks, liquidity in the financial sector, system-wide confidence in the currency, the economy, the instruments of finance, well, then I reluctantly agree that we can't let the banking system fail.

We need to buy up their distressed assets at a fire-sale price, insert liquidity into the market, and restore confidence with a grandiose action. We should also (like B of A) buy these Mortgage Backed Securities at a price that is likely to make a profit. The stars are aligned - for once Congress can buy something low, and sell high, and fix a problem at the same time! Why are so many people against a "bailout" when other banks are doing similar things for a profit motive? Must be because we are rightly jaded at our government's ability to actually negotiate a good deal for us.

But I'll close with what I think is my most salient point. Government in this country ignores small business, and it's a scandal. It's like Hollywood or any other winner take all sector, the most visible and most popular get all the attention. The stars get all the press coverage. Enron, HP, big Oil, Google, etc. All of these firms have a corporate jet, lobbyists, and they all take legislators at every government level out to steak dinners, or a quick Gulfstream flight to Carmel for the weekend. Their ability to spend money getting close to politicians makes them front of mind. Politicians get the mistaken belief that what these companies say, do, or want is "good for business". But the majority of the American GDP, the majority of American jobs, the majority of American innovation - it comes from small businesses. And "what's good" for the top 5% of businesses is NOT often what's good for the bulk of us that operate with courage, dedication, entrepreneurship, and fresh ideas, but under the radar.

Small business owners don't fly to DC, don't get invited by Congressional panels, don't get put on "Advisory Boards" for the governor, and basically don't have a voice. The blinded politicians pass Bills that are good for these mega corporations, yet do nothing for us...and then honestly try to pass them off as "good for business" - with total ignorance of the fact that big business is NOT what makes the country tick. Those slow-moving, bad decision making behemoths like the auto makers seem to do more harm to domestic production than anything. Their bad choices tend to shrink jobs since their salad days, and even with favorable laws, they can't make their businesses work. Anyways, the thing that relates this to the current crisis is that NOW, we are re-visiting the "too big to fail" argument. Sadly, I agree with the argument. But this argument, too, is just another unfair advantage that accrues to big business. Of course no SMB was ever too big to fail, so fail we do. We fail when all we need is one month's bridge loan to make cash flow positive, we fail when just another 6 months would bring sustainability to our restaurant. We fail when our town routes traffic around our street with a detour, construction project, or urban plan. We fail when our currency drops and we can't afford imported supplies, we fail when the currency goes up and we can't sell into the global market. Nobody comes in to help us SMBs, EVER. And when we fail, there is no golden parachute for the CEO, but usually there is a big outstanding equity loan against their house. And yet after ignoring our existence in any policy decision, the government and big business (banks in this case) want us rank-and-file Americans to help again. Guess we'll just have to hold back our vomit and write the check.

The most likely outcome, at this point, is that congress will pass a bailout bill, it will not be as well-made as it should. Many special interests will alter it, there will be pork, Paulson will end up with too much control, the executives of the offending banks will not pay as high a price as they should, the prices paid for the MBS bundles will be too high, and liquidity will be restored, and our economy will bounce back after a difficult slow period.

Surviving the current credit crunch is something that business should have done a while back. The best advice I ever heard was  when a wise person said to me the time to evaluate your business cost and cash position is not when times are tough but when times are good. Even so, most people don't do that. However, there are many things a business can do to weather rocky financial conditions that fall into three buckets: managing costs, managing cash flow and increasing business volume.

Managing costs

Now more than ever it is easier to reduce costs by doing many tasks electronically. For instance:

  1. Move routine commmunications to email or instant messaging
  2. Bank online for both payments and receipts
  3. Bill electronically

At an operational level you should be scrutinizing every expense or overhead line item, looking for areas of waste or opportunities to lower cost:

  1. Negotiate new terms for property leases, offering longer terms at a reduced rate.
  2. Where possible, consolidate occupancy.
  3. Consider switching to homeworking for staff and so release property requirements but ensure that communications will not be impeded.
  4. Consider the extent to which you can operate hot desking. 
  5. Negotiate or switch communications carriers ensuring that each category (voice, mobile and data is optimized for your consumption levels)
  6. Review communications consumption with each person who uses company cell phones to determine the best patterns of use commensurate with different levels of doing business.
  7. Where possible, switch to low energy lighting, reviewing the cost/benefit of acquiring low energy light bulbs and their ongoing consumption cost. Obtain guidance on this from your energy provider and request an energy audit.
  8. Consider the cost impact of reducing the amount of energy you consume. Examples might be reviewing the times of day when air conditioning is used and the temperatures at which it is triggered to come on and off.
  9. Endeavor to eliminate printed material and associated postage. You won't get rid of it all but you can almost certainly make material savings. Review the potential to use online storage services such as Google or Boxes.net
  10. Defer the purchase of new printers, concentrate on using laser printers rather than inkjet printers. Inkjet ink costs are astronomical but can be significantly reduced by using refillable cartridge services.
  11. Consider the frequency of janitorial services. Does the office really need cleaning every night? Might staff at least partially fulfill that service?
  12. Renegotiate bank service charges. Moving to electronic funds collection and disbursement should reduce costs. Right now, your bank will be more concerned with keeping your business and will be disposed to talking about fees.
  13. Review all forms of advertising and consider alternative methods of communicating your message. If your company doesn't have one, invest in a blog as a way of communicating rather than continuing to send fliers and other promotional material. Examine whether online advertising might be better for your class of business.   
  14. Eliminate all un-necessary travel and ensure that travel costs are optimized. It is surprising how much can be saved by using services like Kayak and considering alternative lodging.
  15. Consider whether you can make general savings by using purchasing cards. Companies like Concur and Rearden Commerce provide purchasing services that can lead to significant costs savings.

Managing cash flow

  1. Companies don't go under for lack of profitability. They go under for lack of cash. Thererfore, apart from reducing cost, you need to optimize incomings and plan outgoings. 
  2. Many smaller businesses are poor at credit control but in these times, this is one of the most important skills you can exercise. It is not just about debt collection but efficient recovery. So for example, look at your best customers and consider offering them discount for early settlement. This will ensure that you accelerate collections. Review your worst payers and consider ceasing business with them or applying onerous surcharges for late settlement. No-one likes to cut off customers but if they're not paying then they're not worth the business.
  3. Think about how you can plan the timing of incomings and outgoings so that cash is balanced as closely as possible. 
  4. Review lines of credit. You may find it difficult to obtain additional credit at favoriable rates but the more you can show you are exercising restraint and managing your business well, the more likely you are to receive a favorable decision. 
  5. Obtain help and advice from your accountant in planning for cash flow. He or she will ask the kind of searching questions that will make you think about how best to manage cash. 

Increasing business volume

While it may sound strange to talk about increasing business there are always ways of doing so. Examples might be:

  1. Can you bundle services more attractively so that customers will want to do more business with you but without incurring cost?
  2. Are there lines of business that you could shut down, substituting for others that are more profitable?
  3. Are you maximizing the potential of your best lines of business?


Make sure you to take the right professional advice for each type of issue you are tackling.Your accountant can be your best friend so consider alloiwing him electronic access to your books and records. If you're not already doing so, use software s a service offerings from companies like Netsuite and Freshbooks as a way of ensuring you can do so.

Anything that would be capex should be moved to opex. This will ower costs in the longer term and not saddle you with assets that cannot easily be turned to cash.

Be optimistic. The dark clouds may be gathering but they will pass in time.At which point you will be fitter and leaner to take advantage of the next upswing.

Joseph Hunkins
Wed Oct 8 10:45pm
Nice insight. I think you've offered several excellent savings tips that will affect bottom line without reducing productivity.
  • What are the implications of the current economic crisis for small businesses?

The most specific and severe impact is to small businesses that use credit to do their payroll.  Should the credit markets seize up in a way that disallows these businesses from getting their payroll loans, they will essentially be forced out of business immediately, since they won't be able to pay anyone to work for them.  Note:  This is what is supposedly happening, not what is actually happening, which I will address later in the article.
  • How can you plan to survive this crisis?
Simply, I run my business enterprises on 100% cash, and I strongly recommend not using credit loans to make payroll.  I understand why a brand-new business might have to do that, but if you can turn a profit, you should be able to save up a month's worth of payroll and use that as your own "virtual credit" line to keep payroll happening out of sync with any off-month business income.
  • What advice do you have for others in your shoes?
My advice to anyone who has a credit payroll situation, or other tentative credit related to their small business, is to consider cash options to credit wherever possible, and do what is necessary to minimize the impact of that credit should the bank seize up on loans.  This is about risk mitigation, not withdrawing from credit entirely.  Credit should still be used, but in situations where if it were not available, there are other options, rather than as the only lifeline for the business.

  • What do you do if your bank goes under?
All my deposits are FDIC insured, so I should not lose any money.  I would have an account open at another bank in a heartbeat, and it might be wise to simply move pre-emptively to a very large bank, should a convenient time to move present itself.  I don't advocate a run on any bank, but hedging your bets is a wise move.  If you know your bank has large credit default exposures and limited liquidity, that would be a sign to move off of that bank.  Most small banks will likely be purchased by larger banks rather than completely disintegrate, but that risk of disintegration is why you'd want to have at your disposal FDIC insured assets, as well as the capacity to get a loan against existing capital through a large institution.  That way, if the smaller bank goes out of business and your assets are temporarily frozen, you can get the larger bank to credit you with a percentage of the assets towards daily operations while the FDIC pays you back.
  • What steps can you take to protect yourself from the impact of the wider market?
I consider exchange in both luxury goods that are always in demand, as well as "panic" staples to be extremely good hedges against the market impacts.  If you are selling something that people no longer want as a result of the credit crunch/market impacts, then address your customer base's needs and find a way to fill them using products or services that would be within your business's range of expertise. 
  • What does this mean about your small business?
For me personally, I will stay heavily invested in the financial side of development.  In times of financial stress, the actual finances of any business are under a particularly bright spotlight.  If my advice helps people make smart decisions that they credit me with, I will be in a stronger position after the crisis.  That's what I advocate for everyone -- come up with a way to strengthen whatever you can about your business and take advantage of any opportunity to leverage the market downturn.  When things recover, you want to be riding on the front of that recovery, rather than playing catch-up to the new market leaders.
  • What is next for the overall economy?
A stock market correction was going to happen at some point, and with the new administration being elected shortly, the economy will make a slow but strong recovery.  I suspect that those willing to do what it takes to survive the brief but noticeable downturn will reap significant financial gains in around 3 years.
Devin Moore
Mon Oct 6 5:38am
*Note: I am not aware of a local business that is actually suffering a true payroll credit crunch. In fact, I know of several local franchises and very small businesses (under 20 people) that are doing just fine.
Joseph Hunkins
Wed Oct 8 10:49pm
the economy will make a slow but strong recovery.

I hope this is realistic, but I fear we face the greatest challenge to the economy in decades. We'll see massive layoffs and negative global GDP for several years. It is time to batten down the hatches.

 I believe I have an interesting take on the current financial imbroglio we find ourselves in.  I am both a small business owner and a financial advisor.  So, while the stock market has taken a significant whacking including the largest American bank (WaMu), insurance firm (AIG) and broker (Merrill Lynch) all having tanked, I am feeling the fallout from the current malaise two-fold.  This blog post will based on my insights into helping a small financial advisory make it through the tough slog ahead but should have applicability to any business.

Black Swan Contigency Planning black swan

What's the issue: There is an incredible amount of interdependency we're witnessing across businesses, sectors, and geographies.  When a mortgage bank fails in the US, it has far-reaching consequenses felt around the world.  Little events are exacerbated and seemingly discrete events domino into global markets tanking.  While banks like Merrill and Morgan looked as if they should weather this storm OK (albeit with some lumps), Lehman's demise called into question these firms' viability overnight. 

What to do:

  1. Always have a "what if everything goes wrong" Black Swan contingency plan: I'm not talking about preparing for a nuclear war or a situation where all money loses its value -- if that occurs, quit your business, hock everything and buy some ammo and head to the hills.  I'm talking about that Black Swan type event that could impact your business so acutely that your business may not be the same for years in its wake. Financial partners have their funding means dry up.  Customers push out purchasing decisions indefinitely.  Distribution channels close.  In fact, small businesses are much more nimble than large firms in dealing with these types of changes but lack the staying power that comes from being a larger company.
  2. Is"safe" really safe?: During a black swan type event, things go wrong that we didn't expect.  Is your banking partner really solid?  Ask him.  What if one of your trading partners goes under?  Can you continue buying/selling?  In my business, core money market accounts are what clients use to park their money.  We've read of a few of these types of fund cratering.  What's going with in your firm's products?
  3. Backup everything that can be backed up
  4. You can't be too conservative: Taking risks aren't going to be rewarded in the short term.  Cash is king in this market and it will pay to preserve your business capital and business processes so that you can take advantage of the situation when the markets rebound.

Assessing Partner Viability

What's the issue: Partner demise can not only create a drag on your business, it can tank it.  We've read various reports surfacing that JPMorgan played a role in Lehman's demise.  JPMorgan financed Lehman's daily brokerage business and by partner freezing Lehman's account, it looks like Lehman may have entered a death spiral.  The point here is that given our various integrated relationships, it's important to look at everything, from accountant to lawyer to bank to hosted CRM platform and test how dependent we are on our partners.

What to do:

  1. Think Global, Act Local: Watching Lehman Brothers' quick demise and its subsequent spillover to firms like Merrill Lynch and Morgan Stanley, it's clear that what we're dealing with is systemic. What may have begun as poor risk management of singular firms has become everyone's problem given the financial communities various webs of interaction and influence.  Instead of my clients asking "Hey, how's my portfolio doing?" (they know NOT to ask), they are asking fundamental questions like "Are banks going to make me whole on my CDs?" and "Are my cash and securities safe if you or your financial custodian go under?"  I've spent so much time on the FDIC's website (a branch of the U.S. government called the Federal Depoit Insurance Corporation), that I'm thinking of making it my homepage. After the Depression, the federal government instituted a program to insure bank accounts up to $100k (this has been temporarily expanded to $250k in some cases) to support banks and help protect from future runs on banks.

I send clients here for a treasure-trove of information like a list of failed banks, what protection consumers really have,  and what role the government is playing in bailouts of such massive banks like WaMu.  What was taken for granted in times of plenty is being called into question.  To extrapolate this further, times of crisis require talking to your trading partners and determining their solvency and their ability to weather the financial storm.  If suspect, changes need to be made to protect your business and your customer base.

Bolster customer relations

What's the issue: During chaotic times, customers frequently feel left out in the cold.  Frequently, in the asset management business, it's not their poor performance that creates customer disatisfaction but rather how well they are treated by their hug advisor throughout this process.  Customers understand that there are issues beyond the control of the service provider.  What they really demand, though, is the guidance of the service provider during tough times.  Interesting article about customer churn during tumultuous times in the asset management industry. 

What to do:

  1. Be proactive about working with customers/clients though the crisis: This is extremely germaine to the financial advisory business.  While many clients may not actually need to make changes to their portfolios, what clients frequently want to know is that their supplier/service provider is emotionally supportive throughout the crisis.
  2. Call clients: Don't rely on form letter communication.  Get on the phone and listen.  This simple rule is worth money.
  3. Go out of your way to connect: This works with clients and prospects.  Plan mini-seminars to discuss what's going on.  People have a lot of questions -- become the go-to-guy in your field during times of trouble.


Crazy times call for crazy measures and require shoring up every aspect of your business.  From customers to suppliers, small business owners must secure distribution and supply lines.  While taking risks should be minimized, by doing good diligence, business owners should not only secure their current business but position themselves for increased business flows when things snap back.  They always do.


This current financial crisis will impact small businesses in a number of different ways.  From the development and expansion side as well as the customer side, small businesses will feel the pinch. 

A small business' ability to get through this crisis is going to depend partially on how quickly the economy comes back.  A quick recovery would allow them to use cash and existing lines of credit to meet their costs.  To do this, small businesses are going to need to be cautious regarding their outgoing expenses which are not immediately generating income on the short term.  This may mean that they need to reign in unprofitable aspects of the business or control other expenses, such as personnel or marketing costs.

Small businesses are going to struggle during the current crisis due to a increased difficulty in getting reasonable rate lines of credit, which is going to impact their ability to weather the crisis as as well as their ability to adapt or expand their business during this period, both of which may be necessary in order to weather this crisis. Scott Shane on the Open Forum  noted that businesses with bad credit, as of September, are paying three times the interest rate that businesses with good credit have.  He speculates that because of those inflated rates those businesses are not going to be able to make a profit.  This is going to hit the younger companies who are struggling to stay afloat more than an established company which is already profitable. 

Small businesses are also going to be hit on the consumer side.  Whether they supply other businesses or the public, both are going to be cautious during this crisis, whether they have great need to or not.  Having already spent their stimulus check, consumers are going to be less free with their available cash, and as  an Anonymous Coward wrote in comments on the Tech Dirt Blog, once businesses struggle getting credit, consumers can't be far behind.  This will impact the cash coming into the business, but they'll need to resist the urge to deeply discount their services to keep things moving, because it will devalue their product or service as the market comes back.  They'll instead, need to make savings in less transparent ways, and, as suggested by the National Federation of Business, promote the lower cost products and services.  They're going to have to be cognizant that thiscrisis  is temporary, and be careful not to gut potentially growth areas of the business or alienate customers or suppliers during this crisis.

It is during this period of uncertainty as to which way the market will move, whether it will continue to slide or whether it will start to stabilize and recover, you are going to see businesses doing some paring and being less development and expansion focused.  There will also be far less development of new businesses as both banks and VC's are going to be holding close to their money, and making it more difficult for those without a current line of credit to get some.  Its going to be a rough period for small businesses as consumers and lenders are going to be more cautious about their money, and asking more when they do part with it.  The small businesses that are supported themselves on credit and were struggling before this crisis, will likely fold under the pressure.  For those that are profitable, the small business that can successfully control costs without sacrificing quality or reputation should make a recovery. 

There are two sources of problems for small businesses during this financial crisis.

First, for small businesses that are already struggling, maybe cash flow negative or break even - with rising prices on supplies, gas, and even employee health insurance, companies are going to see their costs unavoidably increase. Businesses in these situations are inherently unstable, and become higher risk for lenders. During a time of economic uncertaintly (or potentially recession) they are less than ideal credit risks.

The second source of problems comes from the lenders themselves. Lenders buffetted by the recent shockes are losing faith in their own good judgement - and fear is creeping into the credit market as well as the stock market.  Good companies with positive cash flow that shouldotherwise have not trouble obtaining loans that some sources have dried up completely.

The good news is that good lenders who know their business are still around and operating - and these are the better sources of debt anyways. Additionally, some financiers have identified opportunities in the debt market and are raising funds to address any illiquidity that might arise. Although they frequently entail "venture debt" premiums, this is an option available as last resort.


For a small business, a few steps to take are readily apparent:

  • Conserve cash - reduce expenditures and unnecessary, long-term investment
  • Don't be afraid to renogiate pricing with unprofitable customers.
  • Renegotiate vendor contracts as possible
  • Owners should be prepared to "self-fund" loans in order to get the company through the storm. That may mean putting off an expensive vacation or home renovation
  • Maintain day-to-day activities. Business as usual - important for keeping the revenue coming in, and maintaining confidence with customers
  • Consider strategic partnerships within the supply chain (and even with competitors!)


Best of luck, and remember that just like reports of wars and plane crashes, much of the news focuses on sensationalist journalism that doesn't affect most people's day-to-day lives.









Daniel B
Tue Oct 28 7:05am
A couple of examples: a small IT company with about $1M in revenues, negative cash flow and $200k in debt found itself unable to extend its lines of credit (and meet payroll). It was forced to take a hard look at operations, reduce workforce, and renegotiate contracts to become cash flow positive.

As an example of a solid company pressured by its bank: a company that had been in business for 20 years, had about $5M in revenues and 15% EBITDA margins. Unexpectedly, the bank cut its revolving credit, which was used to maintain inventory. Since there was consistently level of assets and cash flow to collateralize, as well as a long history of stable performance - the only explanation for the change in lending is because of the bank itself.

What are the implications of the current economic crisis for small business?

It is doubtful that most small businesses, such as mine, are actively looking for new loans, and most likely have lines of credit or similar methods for finding needed cash. I therefore doubt much real financial impact. 

However, the negative "pall" will cause many customers or clients to "pull back", often over-reacting, and that means the small business that has no "ace in the hole" is likely in a lot of trouble.


How can you plan to survive this crisis?

I have been expecting this for about six years, and doing all the things necessary to survive (and, to some extent, prosper) in the current economy. Those persons who were "blind-sided" by these developments are in big trouble. Though it may be too late, they need to cut expenses and prepare for the long haul. 

Any small business who expects a quick return to normalcy will likely not survive; as Andrew Grove put it, "only the paranoid survive". I am fortunate that my paranoia started six years ago, so even though I fully expect things to get worse, and for a very long time, it is simply not a problem for me (and, I hope, for most other small businesses).


What advice do you have for others in your shoes?

If you haven't already done it, you are in great peril, but if there is a way out, it is this:

1. Viciousness: like the old joke "I have to let you go, say 'hello' to Dad when you get home".

2. Thrift: spend freely what you NEED to spend, and cut to the bone otherwise (and if you can really do that well, my heartfelt admiration!).

3. DON'T PANIC! This also will pass (though not for a very long time).


What do you do if your bank goes under?

DO NOT rush to the bank to get your money! Panic is not the answer!

DO wait for the FDIC to sort things out; you will get your money, and you get a chance to learn how to survive without it while you wait.


What steps can you take to protect yourself from the impact of the wider market?

Wake up! The wider market will abandon you as the "dogs eat the dogs".  Concentrate on your core business, your best and most loyal customers! Help them while they help you; "TEAMWORK!". 

Keep prices low and value ever higher!

Most of all, stay calm and collected. Your clients and customers will slowly and surely respond in kind.


What does this mean about your small business?

For those who expected this, very little; we endured the pain preparing, and now it will be upward and onward.

For those who did not expect this (shame on you!), it will be a great opportunity to find out if your business makes sense; if it does, and you run a "tight ship", it will be an invaluable learning experience, and in the long term, it will strengthen your business. The result might be a better business than you would otherwise have ever had.


What is next for the overall economy?

In the immediate future, great pain for many, since going from "fat, dumb, and happy" to "lean and mean" is a very hard thing to do.

If we all learn to be draconian on the things that DON'T make sense (I wasn't kidding about firing dear ol' Mom), and if we learn to treasure our core business (lower prices with greater values), we will do very, very well.

For the people who, as Tom Peters put it, "rise to their level of incompetence", it may still be fine for a while, but the axe is being sharpened, turkey!


The recession is here - get used to living smaller.

The implications for small businesses given the coming global economic slowdown are generally unfavorable and potentially catastrophic.   Most small businesses have yet to see the many problems that will come as weakness in the broader economy start to ripple through all sectors, but barring an economic miracle we're in for a very rocky ride.

Businesses that depend heavily on credit lines should look for ways to reduce that dependence as much as possible.  For example consider discounts for payment at time of service, consider relatives and business partners as sources for short term loans, etc.   The condition of the entire global banking system is not clear at this time but it's very likely that credit will be tight for several months and perhaps longer.  Even as credit opens up banks are likely to be more cautious than in the past and may be cutting lines back significantly for many businesses.   Many more banks are almost *certain* to fail and although this won't put deposits at risk it may freeze up or delay access to credit while these banks are absorbed into the banks taking them over.

In general look for ways to run your business more efficiently.   With only a handful of exceptions your revenues are going to go down and profit is going to drop if you can't cut expenses significantly.   Use this time as an extra incentive to run very lean and efficient - always an advantage in good times and bad.    Put off purchases that are not necessary and consider downsizing office space.   Keep employees realistically informed of their prospects and make it clear that productivity is of the highest priority in the coming years.

Bank failure?  Just follow the Hitchhiker's Guide to the Galaxy.  (Don't panic!)

A tiny silver lining is that bank failures, though inevitable, will not pose extraordinary problems because it is very clear that the Government plans to take on any risks associated with normal banking activities.  I think this stems from Bernanke's deep understanding of the forces that drove the great depression and the idea that govt intervened too little and too late, allowing huge banking failures to deepen the problems.  The Government will become involved in this economy to a greater extent than at *any time in US history*.    It's extremely hard to predict the effect this will have but generally it is likely to lead to stability and inflation as new money pours into the system to buy up toxic bank paper, insure depositors, and more. 

Planning for the future:

I'm planning for at least several years of negative economic growth as the economy shrinks.   I think the economy has swelled to absorb the spending frenzy from trillions in paper wealth that has now evaporated, and it will take several years to scale back business to match reduced demand and reduced spending power.   I don't think this will be catastrophic, and if the government manages the bailout properly it may be relatively painless for many, though a lot of people are going to lose their jobs and I think most businesses should batten down the hatches for a long winters night of low revenues, smaller customer base, competitive pressures from more efficient players in their niches, and generally a very challenging business climate.   For the first time in many years I think risk and innovation is not likely to reap rewards with the probably exception of the real estate and financial sectors where many fortunes will be made by those who correctly anticipate the massive changes that will result from the global economic bailouts and interest rate manipulations.

In the last six weeks I've lost 25% of the money in my retirement funds. But I remember my financial planner's advice: the worst time to check your portfolio is after a major market drop. Worry about current problems, not future ones, especially since the economy has been lurching wildly week after week. And remember that right now workers are facing the same crushing uncertainty as business owners. So it's not just one industry's problem — it's everybody's.

In 2001 I worked for a magazine about PDAs. One day I read that Palm had laid off nearly 20% of their workforce — and eight weeks later, I was laid off. I should've realized that Palm was one of our biggest advertisers, and the ripples would be very real. So I'm rightly worried about the same thing today. I own a small but very profitable web site that's entirely supported by ads. If the financial crisis sinks my advertisers, I'll be hit by the first ripple.

Obviously, it's a good time to trim expenses and try to raise enough cash to withstand the crisis. But there's another old-fashioned response: be flexible and diversify. I was laid off in 2007, but since then I've managed to pay all my bills with a patchwork of fascinating new enterprises and online projects. When one revenue stream suddenly dried up in September, I was able to simply increase my time in the other areas. On the side, I've even found a web site that's now paying me to write short stories for children. While it's not much money, it's a dream I've had my whole life. Maybe an economic crisis is as good a time as any to try moving in a new direction. In 2008 I even discovered a man who'd been laid off from his job in the mortgage industry, but then immediately started a successful home-based transcribing business with his wife. During a rough patch, I became one of his online workers, earning over $3500 in just a few months. It's also proof that in difficult times, it always pays to network.

The financial crisis has already darkened our spirits. It may change the outcome of this election. It may hamstring our government policies for years. Ed McMahon has lost his house. And three friends of mine have started hoarding gold. I returned from a two-day vacation to find one had left this message on my answering machine.

"Um...look. Here's the deal. I know you still have your mutual funds. If you want to make it, you have got to sell them today. This market is coming down hard next week, dude. It's crashing, and it's not going to come back for a long ******* time. Holy ****, get out today, please for the love of god, get out. Okay, bye."

The next week the price of gold went up, and my friend invited me out to gloat. And that weekend, I discovered spammers were now incorporating the bailout into their come-ons. (A suspicious email advised me that "Federal Bailout grant funds are now available to you. [Click here!]"

But I'm just not convinced that it's a crisis we can't weather. My bank was one of the ones that failed: Washington Mutual. But overnight, it was acquired by JPMorgan Chase, and the transition has been surprisingly seamless. They were quick to assure me online that nothing changed — that deposits remain insured by the FDIC and that JP Morgan Chase "has more than $2 trillion in assets and is America's #1 bank in deposits." (And soon, I'll have access to 9,300 more ATMs.) And the bailout package even increased the size of the FDIC's guarantees temporarily to $250,000.

In fact, Business Week says this is actually a great time to invest in the stock market — since the price of every stock has dropped dramatically. NPR reported that one stockbroker (who actually works on Main Street) has reported that business is booming. (And I trust Business Week — probably because I remember my father had a subscription when I was 13.) Maybe every crisis really is an opportunity after all.

Arthur C. Clarke once said the best advice for humanity came from a Douglas Adams book: "Don't panic." We'll survive this crisis with faith, in our country and in ourselves.