The Small Business Recession Plan B: How to Create the
Six-Part Contingency Plan That Will Help You Guide Your Business Through the
by Ed Hess and Charlie Goetz
These tough times are uncharted territory for many small business owners.
Creating a recession contingency plan will help you navigate this bleak
economic periodóand still be around to enjoy a sunnier tomorrow. by Ed Hess
If youíre a small business owner, your list of worries seems never-ending.
For starters, consumer confidence is down and your sales are starting to
reflect that reality. And as experts predict a deep recession, itís doubtful
things will start looking up anytime soon. Yes, youíve been wringing your
hands and obsessing over the financial news for months, while simultaneously
scrambling to keep your customers happy and your business strong. But action
is the best antidote for agonizingóand now is the perfect time to create a
recession contingency plan that will help you guide your business through
any future rough patches.
Too often, when the economy goes south, a small business owner is paralyzed
by anxiety and isnít able to act quickly enough to save his or her company.
Having a well conceived contingency plan in place gives you peace of mind
when trouble hits and enables you to act quickly.
For small business owners, contingency planning is one of the best and most
effective preventive actions you can take in a down economy.
Contingency planning will allow you to make the best possible decisions for
your business if things continue to get worse before they get better. Even
if you are an eternal optimistóafter all, many of us entrepreneurs
areóyouíll be wise to have a contingency plan in place if, say, one of your
biggest clients succumbs to the bad economy, or if you have to face the
difficult decision of whether or not to lay off an employee.
If youíre unsure where to start when it comes to crafting your contingency
plan, here is an explanation of the critical elements youíll want to
A People Plan
For small business owners, employees are often like family.
That means the most difficult decisions youíll have to make will probably
pertain to them. That said, itís important that you remain objective when
creating the "People" section of your contingency plan:
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
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
Itís likely that your customers are feeling just as
much anxiety as you are right now, so itís 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, itís 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, itís
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 theyíve 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
donít 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
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.
Thatís 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 youíd 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 youíve 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. Itís time to fall back on the financial
safety net that youíve 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 companyís assets? Reduce
employee salaries? Apply for a small business loan?
You donít 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. Donít 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 arenít to
blame. Being turned in to a collection agency will tank your credit score.
You absolutely canít risk it.
An Exit Plan
There are some situations you simply canít plan for. You canít
know for sure how your industry will be affected by the down economy. Itís
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
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 upóand they will!—during a slow economy. But keep in mind there are
some basic things that you absolutely canít lose focus on during a
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. Edís
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
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.
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