CASH IS KING to a small business and it is especially true in times of tight credit, as many small businesses are finding out. Lack of money can turn your new business dream into a nightmare very quickly. One of the major reasons for new business failures is the lack of sufficient funding. In order to survive a down economy such as we are experiencing now, it is necessary to develop a short-cash survival plan for a further weakening of the market, and do all you can to conserve your cash. Things you can do:

1.Give discounts for cash payments or early payments.

2.Assure your banking relationships of your healthy credit position, which of course means making any payments that are due on time, and that may mean foregoing a salary draw and adding personal capital to the business.

3.If you have assets that can be used for collateral, consider taking out a loan on them. A complete business plan will be necessary for you to show how your company will be able to repay the loan. Consider an SBA-guaranteed loan if your assets are inadequate for required collateral.

4.Delay purchases and work down your inventory. It may mean inability to respond in a timely manner to sales opportunities, but plan for reduced sales during this period. This may mean laying people off or changing their status to that of part-time employees. Alternatively, employees may agree to shorter work weeks for all.

5.Pursue any overdue accounts (assume these companies are in a cash bind) and offer discounts/settlements. You may have to require prepayment for future orders otherwise, or limits to future amounts ordered. You may lose a customer, but remember you are fighting for survival.

6.Extend payments to your suppliers and seek new ones who might give you better credit terms.

7.Solicit investors or loans from family.

8.Only as a last resort - and only for short-term periods - utilize credit card financing.

On the other hand, if you have been successful and have more than sufficient cash to survive because you have been planning well all along and are sufficiently funded, a recessionary period represents an opportunity to grow faster than your competition.

Develop a plan to use your cash to your advantage:

1.Seek new customers who are basically healthy (you expect them to survive a recession) and if they will make the switch to you as a supplier, offer terms that are more liberal than normal - even if for a limited period.

2.Take advantage of, or ask suppliers for discounts for early payment.

3.Take advantage of special inventory or capital purchase offerings that fit in with your long-term plan.

4.If you are really flush with cash, you may seek acquisitions among competitors who are in weak negotiating positions.

Key here is that the fit is strategically sound.
An excellent discussion of cash flow is at: www.toolkit.com

It's sad to see a business fail because of under-funding and inadequate planning for business contingencies. Be sure that your new business has a good chance for success.

SCORE - service arm of the Small Business Administration - works closely with lenders, area colleges, universities, chambers of commerce, and many other organizations.

Also, an extensive array of business-related, detailed information and references are available on the Small Business Association (www.sba.gov) and National SCORE (www.score.org) web sites. Serious entrepreneurs should visit these sites as a first step to starting or upgrading a business.