Tough Times: A Survival Guide for Frustrated Business Owners

tough-times-a-survival-guide-for-frustrated-business-ownersEvery business goes through tough times. That doesn’t mean that the business owner is running a bad business. It just means that they need to make a few tweaks to their financial plan. If you run a business, and you’re not doing these things, you might consider revising your own plan.

Never Let Debt Exceed 30% Of Expenditures

There is an old calculation that bankers still use to determine whether someone is financially healthy or not, and thus worthy of a loan. While not many talk about it, this calculation is simple and a fairly reliable measure of a business’s financial solvency.

Take your total debt payments and divide them by your income. The resulting number can be expressed as a “debt to income” ratio.

For example, let’s say you go to to find a home to buy because you’re a landlord and your income comes primarily from letting properties. Your total income is £10,000. But, your total debt payments are £4,000. This means your debt to income ratio is 40%. At this rate, it’s going to be very difficult for you to repay all of your outstanding debts.

Most banks would consider you a bad credit risk and unwilling to lend you any more money.

But, many times, this ratio gets ignored when credit cards and other debts are added to the mix. So, a business can easily exceed 30% debt-to-income, thinking that everything is “OK” when it’s not.

A 40% debt-to-income is consider the “ceiling,” but you really want to be no higher than 30%, as this allows some “wiggle room” to comfortably service and pay off debt. Beyond this amount, and it’s almost certain that you will file for bankruptcy at some point.

Plan To Save This Much Money

A secret that successful businesses use is to first save money before asking for a loan from a bank. Even if your income doesn’t look too good, you can make up for it by proving you’re financially responsible. How do you do that? By having savings.

In general, saving at least 25% of your gross revenues will put you in a financially strong position and make it easier to apply for, and get, a loan.

25% sounds like a lot, and it is. Which is the entire point. When you’re saving this much money, you are in fact financially responsible, and you’re worthy of a loan to help get your business going again. There is no magic or trick here. It’s just good, old, common sense.

Put More Money Into Marketing And Customer Service

You should be putting more money into marketing and customer service when the economy slows down. Most businesses do the opposite, to their own detriment. Marketing and customer service are the two departments which directly impact sales. And, sales is how you grow your business.

So, spend the money there and make sure that you invest in growing your existing product line. You don’t necessarily have to invest in research and development. But, you do need to get your product out there and make more sales to get that income coming back in. If you’ve done a good job saving money when times were good, then you’ll have the extra money for when times are lean.

Engage In Employee Sharing Instead Of Layoffs

Another tactic that helps some businesses is to use employee sharing instead of an outright layoff.

If the economy is slowing up, your employees may be costing you more money than you’re bringing in. It’s tempting for employers to lay off employees when this happens. But, this is a huge mistake. Training employees tends to be expensive and, unless your business is permanently in decline, you should find another business that is doing better than you are, or is unaffected by a business cycle in your industry.

Offer the other business employees from your company at part-time hours. Keep your employees on part-time. This way, you can cut your labour costs in half without losing your employees and without a blow to morale.

They will still get full-time hours, and you should explain that the move is temporary and only until the business picks up again. Not only will your employees love you for this, it will show that you truly do care about their welfare.

Take A Paycut

This is probably the toughest call to make. You work so hard, you don’t want to take a pay cut – especially if you’ve been living on a high income for the last couple of years. But, a reduction in pay might be exactly what your business needs to get going again. By freeing up expenses (your labour cost), you’ll have more money to spend on marketing, which will directly impact sales.

Now, you don’t necessarily want to cut employee pay, just your own. If things get drastic enough, yes cut employee hours and pay. But, start with yourself, first. When you show employees that you have “skin in the game,” they’re less likely to balk when you start talking employee cuts.


Ellis Holt spends some time each month working as a business mentor to small-medium businesses, mostly within the retail sector. Drawing on his own business experience he also writes articles and participates in other online mediums to help support business owners and share his ideas.

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