1. What people assets are critical for you to keep? Why?
2. Who can "afford" a salary cut?
3. Who could undertake more responsibility?
4. Who are your definite keepers?
5. If you had to cut 10 percent of your workforce, what would your severance policy be?
6. How would you treat departing people so as to engender trust, respect, and loyalty of those remaining?
7. How would you implement a people "cut"?

By answering these questions truthfully and thoroughly, it will be much easier for you to make decisions concerning what to do with your workforce during the slow economy. Sometimes cutting back on your workforce, at least temporarily, is a necessary evil. Knowing that when you do so you are simply following a plan will help you manage some of the guilt that will come if you have to let someone go or reduce employee pay.

A Key Customer Plan
It’s likely that your customers are feeling just as much anxiety as you are right now, so it’s best to handle them with kid gloves. Fail to do so and you risk damaging a relationship that will not only help get you through these hard times but which could prove very profitable when things pick back up. Here are a few things to consider when developing the customer section of your contingency plan:

1. Who are your most profitable customers?
2. Who are the most loyal?
3. Who must you keep long-term at all costs?
4. How is the downturn affecting each of your customers?
5. How can you get closer to them?
6. Which customers have pressures of their own that will force them to ask you to cut prices? And how should you respond? Should you extend credit, put them on an agreed-upon payment plan, etc.?
7. What can you do to attract new customers?

You and your customers are in the same boat. They face the same struggles as you. In your dealings with them, it’s important that you strike a safe balance between managing their best interests and managing your own. The contingency plan will help you do that and help you make decisions that will allow you to strengthen your customer relationships now. When things pick back up, your customers will remember the way you treated them and will want to do even more business with you.

A Cost-Cutting Plan
When deciding where you could cut expenses, it’s important to consider what you could do to cut costs immediately by 10-15 percent. You should also go through your expenses line by line and consider which expenses are not necessary for your survival. Be sure to involve your employees when creating this section of the plan. Because they are on the front lines every day, they may have a better idea of what can be cut. For example, maybe they’ve noticed that you have an incoming paper supply that could be reduced. You should also include in your plan what to do if the amount you pay to lease office or warehouse space becomes unmanageable.

Naturally the decision to cut certain expenses will be easier to make than others. Just remember that now is the time to get back to the basics. You don’t need lots of bells and whistles to run a successful business, and taking a look at your expenses will help you separate the necessities from the frills.

A Cash Flow Plan
Cash flow is key to running any small business, and managing yours is never more important than in a tough economic period. That’s why you should include cash flow management in your contingency plan. There are two specific groups to consider: your customers and your vendors. First, think about how you can get delinquent customers to pay up. Talk with your customers and help them set up a payment plan with you so that you know you will be getting paid when you need it most. Also, consider giving a discount to those customers who agree to pay in cash. You should also think about how you can defer your cash outflows such as payments to vendors. Ask if you can go to a 60- or 90-day payment cycle.

Keeping up a healthy cash flow is vital during a slow economy. You might have to have tough conversations with customers who need to pay up or a vendor who you’d like to defer a payment to, but if these conversations help you keep cash in your business when you need it most, they will be worth it.

A Financial Safety Net Plan
So what do you do when all of your customers have paid up and you’ve extended your payments to vendors, and you are still having cash flow problems? Quite simply, you consider more drastic ways of putting cash into your business. It’s time to fall back on the financial safety net that you’ve created for your company. What will your safety net be? Will you draw on your home equity? Stop taking a salary? Ask friends or family for a cash infusion? Sell off some of the company’s assets? Reduce employee salaries? Apply for a small business loan?

You don’t want to be making these decisions when you are already in desperate need of cash. While you are still in good shape, plan out the first three ways you could immediately increase your cash flow. And do everything to ensure that you are protecting your credit so that if you do need a small business loan you can get one. Make certain to pay your bills on time. Don’t let anything fall through the cracks. If you are having trouble making a payment, let the company or bank know why. If there is a dispute on a payment, get something in writing that says you aren’t to blame. Being turned in to a collection agency will tank your credit score. You absolutely can’t risk it.

An Exit Plan
There are some situations you simply can’t plan for. You can’t know for sure how your industry will be affected by the down economy. It’s possible that no matter what you do the slow economy will make it too difficult for you to keep your doors open or too difficult for you to navigate on your own.

The exit plan is the hardest for any small business owner to put together. No entrepreneur wants to give up on a venture, but sometimes you have to face reality. So, think about what lengths you are willing to go to in order to keep your doors open. If you are open to taking on a partner, what kind of person is going to add the necessary skills to the business to help you keep the doors open? Or if you decide to sell the business, would you want to stay on and keep working for the company or would you want to go your separate ways?

Of course, keep in mind how long these transitions will take to make. As a small business owner you naturally have a strong attachment to your business. When you put so much blood, sweat, and tears into your business, it can be difficult to pull the plug at the right time. If you decide what your exit strategy will be before you are experiencing serious problems, you can take your emotions out of the decision-making process and come up with a clear-headed solution that protects your best interests.

Creating a contingency plan will help you minimize the risk of any surprises that pop up—and they will!—during a slow economy. But keep in mind there are some basic things that you absolutely can’t lose focus on during a recession.

You should be aggressively going after new customers, marketing your business nonstop, and giving your customers world-class service. Yes, these are trying times for small business owners, but the obstacles are not insurmountable. With the right plan in place, you can create strong, long-lasting relationships with your customers and a business that can weather any storm.
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About the Authors:
Ed Hess lives in Charlottesville, Virginia, and spent most of his business life advising entrepreneurs and financing their business ventures. He went to college at the University of Florida and to law school at the University of Virginia and graduate law school at New York University. Ed’s professional career was spent with firms like Atlantic Richfield Company, Warburg Paribus Becker, Boettcher and Company, The Robert M. Bass Group, and Andersen Corporate Finance, and he has built three service businesses.

In 1999, Ed began teaching business students part-time at Goizueta Business School, Emory University, during which time he created and taught the entrepreneurship course. In 2002, Ed joined the faculty at Goizueta full-time as an Adjunct Professor where he became the Founder and Executive Director of both the Center for Entrepreneurship and Corporate Growth and the Values-Based Leadership Institute.

In July 2007, Ed joined the Faculty of the Darden School of Business at the University of Virginia as a Professor of Business Administration and Batten Executive-in-Residence where he teaches courses on building small businesses and organic growth.

Charlie Goetz earned his college degree at Emory University and holds an MBA from the University of Texas. Charlie is a successful serial entrepreneur. He built several successful businesses, which in total employed over 1,500 people. He sold most of his businesses and made substantial amounts of money their sales. Charlie then began teaching entrepreneurship at Emory University in the Goizueta Business School where he was again successful. His courses are always oversubscribed, and he has earned multiple teaching awards.

Today, Charlie lives in Atlanta, Georgia, and is an investor in several new businesses and consults with people starting businesses. His specialties are marketing, customer acquisition, and product development.

About the Book:
So, You Want to Start a Business? 8 Steps to Take Before Making the Leap (FT Press, September 2008, ISBN: 978-0-13-712667-5, $18.99) is available in bookstores nationwide and from all major online booksellers.

For more information, please visit www.edhltd.com or www.ftpress.com