Small businesses, employing about half of all Americans, make up nearly half of America’s private non-profit workforce. In the current challenging economic environment, business owners are having to deal with difficult business problems such as high debts, unpaid payrolls, dwindling profit margins, forced layoffs, and troubled customers. This poses an immediate threat to the stability of an economy.
Statistics clearly show that there is no quick fix when it comes to running a business. Although many small businesses have not yet experienced a major crisis, like a bankruptcy filing, more than half of all businesses that file for personal bankruptcy are in danger of doing so within the next two years. Businesses with less than 500 employees constitute half of America’s private non-profit workforce and almost a quarter of America’s private non-defense budget. Yet even though these small businesses are a crucial component of our national economy, they’re often financially unstable, with very little liquid capital on hand or adequate resources to cushion even a minor downturn.
So what can small businesses do to weather a storm like this? Two major things remain stable and practical. The first involves maintaining cash and a good credit rating. Second, small businesses should examine their current tax strategies and consider alternatives to statutory income tax breaks, many of which are scheduled to expire at the end of this year. With a combination of realistic attitudes and creative solutions, small business owners can weather the current crisis, but only if they proactively seek new solutions.
The second option, and the one most often neglected in this context, is the ability to expand. Many small businesses depend heavily on seasonal or part-time employees. The current recession has caused many small businesses to downsize even further, cutting hours and downsizing production even further. If those businesses can no longer survive on a part-time basis, what will they do next – lay off part of their workforce, hire other part-time workers, or sell off assets to shore up the remaining operation?
What’s needed for many small businesses is an additional source of revenue. In my experience, the best way to achieve long term sustainable growth is to rent or lease space. Whether you’re starting a home based business, Internet business, or a retail store, the real estate market remains a strong option for today’s business owners. Particularly in the face of falling home equity values, today’s home owners have few places to put their money. Rental property provides a sound investment that doesn’t require credit checks, extensive business planning, or a large down payment. Plus, there’s typically less risk involved in investing in a commercial property than in residential property, especially in a depressed housing market.
A vital part of your home-based business plan will be a comprehensive financial model that shows how you intend to generate enough revenue to pay the cost of rent each month. That means calculating your startup costs, monthly operational expenses, and revenue expectations. In addition, it’s essential to include a cash flow projection, which will project the amount of cash you will bring in during each month. A home-based business plan will provide a road map for entrepreneurs to successfully navigate the difficult early days of business ownership.
For many small business owners, financing is a key issue. In today’s economic climate, traditional bank loans are becoming increasingly difficult to obtain, and even business credit lines are becoming more difficult to qualify for. So many small business owners are choosing to finance their operations through personal savings, lines of credit, investment, or a combination of all three.
Regardless of which method of financing you choose, always ensure that you’re well-prepared to deal with the unexpected. Business plans are a must if you are looking forward to starting a home-based business. If you don’t have a plan, you are setting yourself up for failure. Start early, develop a thorough home business plan, work hard, and make smart choices.