If you asked a fellow business owner the largest threat to his business, he might say a recession. A sustained economic downturn, he might add, will cause companies to close the money spigot, layoff employees, and hunker down until the financial clouds parted on the economy and things were sunny again.

Maybe, but more likely, maybe not. First of all, it’s important to note that we’re not in a recession, so worrying about it is a waste of time. In early February, economic indicators showed the economy has slowed (to a growth rate of .09%), but not stalled, in its most recent quarter. In the opinion of most economic observers, a recession is defined as negative growth rates in two consecutive quarters, and that hasn’t happened yet and probably won’t, if most economists are to be believed. That’s because the impact of the Federal Reserve Board’s series of interest rate cuts will finally hit the economy, along with tax rebates of up to $1,500 per American taxpayer from President Bush’s recently proposed economic stimulus bill, and an up-tick in corporate spending for the first time in a year.

For small businesses the best strategy for staving off tough economic times is to be prepared. At the top of that list is beefing up their cash reserve accounts to help weather economic storms. That means budgeting and cutting back, but that’s a small price to pay to maintain your business’s good financial health. It also means negotiating lower costs for equipment, supplies and services. For some business owners, building a cash reserve may come at the expense of swifter business expansion. But the alternatives-- taking out a loan, dipping into personal net worth, or shutting the shop's doors-- are far less palatable.

If you’re in the retail end of the small business world, another good idea is to streamline your business operations to get a better gauge of how you’re business is doing. One way to do that is equip your computer armed with point-of-sale (POS) software that can provide you with a whole new set of management tools. A good sales software package can help you swiftly determine which are your best-selling products, how quickly inventory is turning over, how much of each item to is needed for future demands, and how to divide shelf space most efficiently. POS software also you avoid locking up cash in slow- moving goods, an extremely important goal during a recession.

One mistake some small businesses make in tough economic times is to cut prices. That sounds good in theory, but your customers will still value a job well done than they do a lower price. Besides, giving yourself a pay cut in an economic slowdown hurts you the most.

Instead of cutting prices, increase your value and reward good customers. Take a course and learn more about your customer’s business. Then put your new-found knowledge to work. For your best customers, start sending thank you notes or buying them lunch more often. People still appreciate the human touch, especially when they’re a bit nervous about hanging on to their own jobs.

Remember, your best selling point as a small business owner is you.
By cranking up the customer service dial, and by stashing some money away until the tough times are over, any small business owner worth his or her salt should easily survive a soft economy.
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William Dorn

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