The recent market turmoil has caused many of my small business clients to consider what curves might be tossed their way in 2009.  We can all speculate how the crisis on Wall Street might affect Main Street, but it is not something that anyone can control.  Therefore, the conversations have quickly turned to considering what is within the purview of the business owner, rather than wasting time attempting to predict the future.  What follows is a synopsis of ideas from several recent conversations.

Hope for the best, but plan for the worst -- Now is not the time to be overly optimistic about the top line.  Unless you’ve figured out a way to avoid the economic downdraft that is affecting everyone else in your industry, now is a good time to adjust the revenue forecast.  Overly optimistic revenue forecasts usually lead to overly aggressive operating expenses.

Propensity for action -- Henry Paulson Jr. made his case on the Sunday news shows this past weekend that action by the Treasury was necessary to control the bleeding on Wall Street.  While many a Monday morning quarterback were quick to criticize his actions, his instinct to act was probably correct.  One of my old partners in venture capital used to say, “do more things sooner, because if they don’t work you’ll have time to try something else.”  Too many managers try to get it right, while the cash continues to burn.

The first cut is the deepest -- Cutting operating expenses is never an enjoyable task.  Firing someone is probably the second most difficult thing any manager has to do; the first being having to shut down the entire company.  The initial reaction to the suggestion of reducing head count is always the same, “it will break the company,”,followed by,  “people will panic and quit.” This is rarely the case, but what will destroy morale is death by a thousand RIFs.  Cut expenses deep and try to just cut once.  If business improves you can hire back, but not cutting deep enough at the onset only costs the company more in the long run.

Workin’ the Chain Gang -- If your company actually makes something tangible, then you have Inventory in its various states and phases.  Now would be a really good time to focus on how much cash is tied up in the supply chain.  Work with suppliers and customers to keep your turns up and your cash outlay low.

Don’t count on credit -- Funny thing about credit lines is that they aren’t there when you really need them.  Don’t count on being able to access credit to make it through a rough patch.   In many cases the bank will never allow a small business to draw down below the amount of available cash held by the bank. 

Everyone in the boat -- Try to be open with your employees about the situation.  As Jack Nicholson would say, “[they] can’t handle the truth,” and some employees can’t.  However, the majority can and want to understand the situation and want to see leadership being proactive and honest about the situation.  They want to know how they can help, so solicit their cost cutting, or revenue enhancing ideas.  Get everyone that wants to be part of the solution in the boat.