by Angie Mohr

Created on: May 01, 2008   Last Updated: May 08, 2008

Running a small business is a complex juggling act at the best of times. Keeping on top of payroll, taxes, regulatory changes, and the needs of your customers takes a concerted effort to ensure that your business remains profitable. In the current economic environment, it can seem more like juggling knives.

In the past year, we have seen an unprecedented collapse in the housing market due to the sub-prime mortgage crisis. Banks and other lending institutions have tightened up lending criteria, making it difficult for both consumers and businesses to borrow needed funds. This situation has brought the United States to the brink of recession which impacts consumer spending and business revenues. According to Susan Lentz at the Phoenix Small Business Development Center, the biggest change she has seen in her dealings with small businesses is tighter lending standards and the difficulty of finding and keeping credit. "Banks are making few loans to startups and existing businesses are having a harder time finding capital," says Lentz. "Existing businesses are also seeing their current lines of credit lowered or frozen". As a small business owner, it's critical for you to plan for the bumpy economic road ahead and protect your profits. Here are five ways that you can "economy-proof" your business.

1. Re-evaluate your budgets and forecasts

You may have projected your revenues and expenses based on market assumptions that are no longer true. Analyze your expected profitability in light of the current economic conditions. This will give you a better idea of whether you will have enough cash to weather the coming storm.

2. Invest in your employees

Well-trained, engaged employees are one of the most critical aspects of your business. When economic times get worse, you don't want to have to hire and train new employees over and over again. Make sure that all of your employees are trained and skilled at customer service to be able to keep your existing customers and attract new ones.

3. Evaluate opportunities for growth on an ongoing basis

During difficult economic times, many other businesses that haven't planned as well as you have will struggle and fail. Be on the lookout for ways to grow your business, including acquisitions, mergers, and product development. If you have projected your future cash flows well, you will know how much business growth makes financial sense.

4. Stay on top of the paperwork

Bookkeeping is not one of most business owners' top priorities when they are busy juggling sales, marketing, human resources, and the other thousand operational tasks that need to be done in any business. But staying current on your bookkeeping is critical so that you have an up-to-date picture of the health of your business. If you know, in a timely manner, that you are straying from your original projections, you can make course corrections or adjust your projections to reflect your current situation. This will let you see the rocks before you crash on them. If you know that you are unlikely to ever keep the bookkeeping current, invest in a good bookkeeper.

5. Keep a war chest

You may prefer to call it a rainy day fund. In an economic slowdown, there will be many rainy days. Those businesses who do not have funds set aside will find themselves juggling funds around to be able to meet payroll or pay taxes or suppliers. Keeping some profits aside to help you through cash flow scrapes gives you more flexibility to operate your business smoothly.

Although there will be challenges ahead for small business owners, diligent planning for and strengthening of your business will lead to smoother waters.

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