With credit availability non existent or in sharp decline, a more transparent relationship between suppliers and customers is needed to overcome the credit hurdle.

In times when money is short a very open relationship based on partnership will allow a chain of suppliers and customers to fulfill orders in a “joint venture per order” kind of way. This will allow small and medium size business to compete successfully with bigger business and take the order. Everyone in the chain has to agree to get paid when the order is finally fulfilled.

This is however not going to solve the problem of financial difficulty in businesses for historic reasons or based on too high fixed cost. In these times cash-flow is more essential than ever. So outsourcing and reducing fixed cost is paramount at every juncture.

I have been talking about the fact that we live in a time of business partnerships, the traditional supplier - customer relationships do not work anymore. This has never been more true than at the moment.

How are you partner skills, I hope for you, they are good. –ST.

This question is hard to answer, because there are no simple answers here and the outcome of this situation could easily be fatal to the business and if you are personally guaranteeing this money - and you probably are - this could potentially be very serious for your personal life too.

The things that you need to do, in my opinion are:

• Find out why? If the reason given are not satisfactory, you will need to get legal advice.
• Try and extent the deadline? If that is possible reduce the overdraft as soon as you can, or negotiate a stepped reduction of the O/D limit, ie. by month or week.
• Try and change bank, ASAP.

People often believe it is somehow always their fault, if the bank changes their attitude towards them, that is not always the case. Banks will always try and make you believe it is, but in reality they my have new internal guidelines for handing out money - banks can get into “cash-flow” problems too. So - don’t automatically assume it is always your fault.

Banks may have the right to recall a loan or overdraft, but I’m not sure if they have the right to damage your business by doing so - especially if the reason for the recall is not your doing. So if it comes to the crunch, get legal advice. This is one of the reasons why I hate these, IMO, often legal but still unreasonable arrangements between banks and clients.

Many years ago someone made the the loan, O/D - umbrella analogy and it goes like this:

When the sun is shining your bank gives you an umbrella;
when it is raining, they need the umbrella themselves.

It is best if you do everything possible to not need banks in the first place, by bootstrapping, outsourcing, planning your business and keeping your fixed costs as low as possible.

Remember sometimes, attack is the best defense even with banks, they may need their money, but they do not need bad publicity either. ST.

I’m answering three questions here, emailed to me during last week, so excuse the long headline. I will give examples and will let you fill in the rest for yourself.

What are “Fixed Costs”?

Fixed costs are operating cost that are incurred when providing necessities for doing business and have no relation to the volume of production and sales. Examples are rent, some employee costs, property taxes, telephone, heating and interest/bank expense.

As opposed to “Variable Costs“, they only occur in proportion to activity within the business and hopefully that will lead to sales and revenue.

Why should I keep my “Fixed Costs” as low as possible?

When I talk about outsourcing, I’m talking about changing fixed cost into variable cost. Let me give you an obvious example to make my point.

Let us assume you have hired someone to answer the telephone, this person cost you $1,000 per month, and on average you get about 5 calls per day. Most of these calls are not even from clients, or you could take the calls while you are in the office. This $1,000 is a fixed cost, no matter how many calls you get, or if you are in the office or not.

So you outsource it to a virtual assistant, now you pay $100 per month and that includes 50 calls received, each extra call is $1 per call. The $100 are still fixed cost, but you have lowered your monthly fixed outgoings by $900. And depending how often you are in or out of your office, the 50 inclusive calls are probably enough to cover your needs. Combine this with online technology and you can stay in touch anywhere and anytime.

Should that not be the case, then you have “variable costs” of $1 per call, which means you are out of the office, working or enjoying life while it is quiet, for example during holiday season. You phone is professionally looked after in any case.

Outsourcing, bootstrapping (cutting costs), it all means the same for any small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants, more money for you, less distractions, and a more recession proof small business, that is why business planning is so important.

Answer: Keep your “Fixed Costs” down. Stay mean and lean, while enjoying your work and life. ST.

Disclaimer: As with any of my readers questions, I do not have all the answers and here on my blog I can only give you some ideas, since I know very little about your small business. If any of you can add anything here do so for the benefit of my reader, who asked the question and everybody else, leave a comment below - I’d be most grateful.

How long is a string? Let me give you some pointers here, but please remember you can always do more on the cost-cutting front in any small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants.

1. Keep your staffing level low. As much as it may hurt, work longer hours yourself, until extra staff is economically viable.
2. Outsource all non-core business activities. This will reduce your fix-cost structure, make your small business more flexible and you can react faster to an economic down-turn.
3. Buy second hand. Do you really need the brand new van? Or computer, or……
4. Work from home, this will not only cut your cost, but may improve your work-life balance at the same time.
5. Let your staff work from home. No office cost, hire a room if you need to on an hourly basis.
6. Use online technology, so you don’t waste time and get distracted.
7. Focus on your core business and sales. Every distraction costs time and money, sales generates money.
8. Bootstrapping. Think before you spend a penny, could I borrow, hire or do it online, get creative.
9. Analyze your fixed cost every month. You will find things you don’t need - trust me you will.
10. Compare and get new quotes. Even if you need the service or product from your supplier, check others all the time, insurance, telephone, utilities, etc.
11. Get better payment terms. Ask to pay in 60 or 90 days, or get an early payment discount.
12. Check your bank charges - you’ll be surprised. Or have it done on a results basis, doesn’t cost you time and gets you money back.
13. Do credit control - get your money in lower your bank overdraft cost and charges.

This is only a short list of what you can do, but it’s a start. Remember even $100/£50 per month is $1200/£600 a year more in your pocket. ST.

Disclaimer: As with any of my readers questions, I do not have all the answers and here on my blog I can only give you some ideas, since I know very little about your small business. If any of you can add anything here do so for the benefit of my reader, who asked the question and everybody else, leave a comment below - I’d be most grateful.

As many of you know by know I’m a sucker for bootstrapping for small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants, and outsourcing is a big part of my bootstrapping philosophy, so here a re a few pointers:

1. To outsource, or not to outsource …. . I would always outsource non-critical and non-core business functions, in other words, whatever it is that makes your small business different and unique you do yourself, because that is what earns your money. Anything else could and probably should be outsourced (see: outsourcing options for small business).
2. Do It Online. This will allow you to stay in close touch with your supplier, and get real time up-dates and feed-back - there are other benefits too.
3. Don’t abdicate. Outsourcing does not mean to forget these tasks, you just delegate them to someone outside of your company, you are still responsible.
4. Know who you are dealing with. Not all partners are the same, one virtual assistant is not like the next, the same is true for accountants, bookkeepers and other service providers.
5. Don’t become a favor. If your future partner says things like: ” I’m not sure if I have time, let me see.” or you new service provider makes you feel, as if they are doing you a favor, don’t deal with them, you need partners and not people you feel guilty calling.
6. Nobody answers the phone - put the phone down and do not call back. Anybody in this kind of service business should understand what service is all about, not answering the phone shows they don’t - they will leave you high and dry sooner or later.
7. Get references, if you can. Anybody who has been in business for 12 month or more should be able to give you at least one or two references. Don’t shun new service providers, check their CV, remember you may get a good deal and it is good to be one of the first customers.
8. Get a back-up. Negotiate a back-up deal if you can, so if your primary provider falls ill, you have a back-up, or divide the work between two or more service providers to begin with.
9. Pay on time. You want good service, pay on time. You want professional work, pay a decent retainer or hourly rate. If you don’t, you’ll be last on the work and service agenda, that means you business suffers. If you can’t afford the service don’t hire them.
10. Get at least three quotes and compare them. Just to make sure you don’t get taken to the proverbial cleaners, and to compare service levels. Don’t be afraid to ask for an explanation, if you don’t understand something.

Outsourcing is good for your fix-cost structure, should make you more professional, and help you to concentrate on your core-business. If it becomes a distraction, deal with it immediately, if need be change supplier. ST.

I have discussed before that it is important for small business and start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants, to do a minimum of business planning, but does it stop there?

Not really, you need to keep up to date with your bookkeeping, to complete the business planning process. You may ask why, if you have done the planning, why not get your bookkeeping done once a year for your tax return?

The answer to this question is the business planning process never ends. Remember I have been talking about going back to your plan at least once a month. In order to fine-tune your small business planning you need to actual information how your business performed in the last month. The only way to do that is to do your bookkeeping or accounting.

By doing that you will be able to compare your predicted numbers in your cash-flow with the actual number your business has generated. This in turn will help you to update or modify your cash-flow plan for the future. More important than that, you will learn new things about your business:

• You may have higher (good) or lower (bad) sales, than you expected?
• Your cost in your business may be higher (bad) or lower (better) than you expected?
• Your cash-flow may be better or worse do to the above two points?
• You may need to outsource some business processes to lower your fixed cost structure, to make your business more recession proof or just more profitable?
• You may need to ramp up your sales and marketing activities for your small business products or services?
• You may also have to adjust your SWOT analysis and your business goals?

You will be surprised how creative you can be, once you know about and understand a problem in your business plan. It may not even be a problem at that time, you may just need to adjust the way you do things, and you may have avoided a small or big problem in the future.

In my opinion strict cost control and bootstrapping are not like nice to have features, they are essential for your small business survival. Often the difference between failure and success is just a little planning and checking the “plan” - doing a reality check. There is no excuse not to do it, all the tools are available for free, for anyone.

If you feel the initial process of business planning is too much for you, than get your accountant or bookkeeper to help you to set your cash-flow fore-casting, SWOT analysis with you, doing it online will give you strategic advantages, like you can work with your accountant or bookkeeper in real time in different places, this lowers your cost, no time wasted and is good for the environment.

I would like to make one more point here, the aim of all this planning is not to get it spot on - no, the aim is to understand what is happening in your business, that is why you should be doing it.

Among other things, it will give you a measure of certainty, security and confidence, if you understand what is happening in your business. So, how confident are you about the future of your business? Why not take the weekend and have a planning session, it is like playing monopoly, only this game will secure your future. ST.

As my readers will know we launched our new OnlineOffice with LiveNet a few day ago. LiveNet is in beta and I would like to get as many virtual assistants to sign up to it as soon as possible. The reason being that my small business clients should outsource as much as possible to make their businesses more efficient or recession proof. So we have a massive need for VAs on our LiveNet.

Signing up and offering your services if free of charge forever - no strings attached.

So I posted a question on LinkedIn yesterday, to see if I could get in touch with people who use VA’s and can recommend their VA. Reason being, if people recommend someone it is kind of a reference and that can only be good for my clients.

Message number four read like this:

He’s not looking for help he’s trying to sell his software

At first I was quite angry, how could she say that? She had obviously not read my website and had made a snap decision to “flame” me.

But then I checked and realised we could have made the “free”-bit a little more obvious, and I had not explained myself in my question well enough, so there are a few lessons to be learned here:

• Tell people what is in it for you, because if they don’t understand where you are coming from, otherwise cynicism rules.
• Don’t expect people to read your web site as they may not - make your offers clear.

There is a great book about web-design by Steve Krug, about the common sense approach to web usability called “Don’t make me think“. It is a great read and I’ll have to look at it again, I guess. ST.

Here in the UK we had the “Pre Budget Report” yesterday. The government set out it’s plans to get small business owners to pay more tax, they increased capital gains tax by 90%. At the same time they announced the economy outlook to be weaker as expected.

The result was immediate, looking thru my log files today, I stopped at the search term listings and saw many references to “recession” in it. Next up one client asked me about “How to run his small business in a recession?” I asked him a few questions to get him to think about what to do in times of a recession:

• What are the problems in a recession? You may get fewer orders, customers pay later, some customers go out of business - was his answer.
• What can you do to combat those problems? Keep your fixed cost down, make sure you have reserves, keep up with your credit control, here I had to help him with most answers.

I’ve been talking about “bootstrapping” or “cost-cutting” for a long while now, with business planning as an additional tool, to combat any surprises. Going the easy route is not always the best way to run a business. For example, having to fire people because the economy is in recession is no fun for anyone and quite easy to prevent in most cases.

So even when the times are good, make sure you do bootstrap so you will survive the bad times. I think my client got the message - good on him. ST.

If you don’t know what co-working is then let me quote from the Coworking Wiki:

“Co-working is cafe-like community/collaboration space for developers, writers and independents.
Or, it’s like this: start with a shared office and add cafe culture. Which is the opposite of most modern cafes. ”

Here is a great resource if you are looking for co-working space or even think about setting up a co-working space. More information can be found in an article by Small Biz Labs ” Nerd Values and Small Business” or “The American Prospect on Coworking; Coworking Location Map” .

It is a great way to work for yourself, bootstrapp and have a social life while working. ST.

For me small business planning centers around some very basic questions and I always aim to answer those first:

• How much is my business going to cost to set-up?
• What are the monthly running costs of my start-up?
• Is anyone willing to buy what I have to sell?
• What other problems or challenges does my business face?
• What are my best selling points or strength?

You may thing that these are all very basic questions and you would be right - but can you really answer them for your small business? I think I would find it difficult at times too. So I have devised this very basic business planning system I would like to share with you:

• Cash-flow Planning
• SWOT - Strength, Weakness, Opportunities and Threats Analysis
• Mission & Goals Statement

Let us have a look at each one of these components individually - first up cash-flow planning - without money it is difficult to run a business. You may see that as a problem, I view that as an opportunity in as much that it forces you to sell your service or product, before you do anything else.

You could of cause do a market study and analysis, spend “lots” of money in the process and have very little extra useful information at the end of the process. While if someone buys your service or product you know it sells - without spending a penny. Enter your sales into a cash-flow and you can easily work out how much cost your small business can take. I’m passionate about “bootstrapping your small business” from day one.

This in turn will help you to focus on saving money wherever you can, since you will only make very little money in the beginning. You will understand that payment terms you offer to your clients or payment terms you receive from your suppliers can greatly help with your cash-flow, I have written about cash-flow planning before.

Secondly I like to do a SWOT analysis so I can focus myself and others in my business to stay “on message” and understand the vision for the business better. Even if you have no staff to begin with, it will help you to make the right decisions and stay focused.

Strength and Weaknesses are “internal” factors where you need to be honest with yourself and write down what you do well and what you do badly - writing it down is almost therapeutic - enabling you base future decisions on these facts, building on your strength, while avoiding your weak spots.

Opportunities and Threats are all about “external” factors and deal with issues like your unique differentiators for your products and services in the market place, as well as your competitors, red-tape, funding issues, etc. Again just writing them down will move you forward.

Last but not least I find it helpful to have a “Mission Statement” for my business, what do I want to achieve, so my customers, partners and others understand what my business is all about.

The “Goals Statement” is more personal, I write down why I run my small business or why I want to start a business.

As with all plans it is of the utmost importance to revisit your business plan as often as once a month or at times when you do not know which decision to take - go to your goals list, it will help you to focus on the way forward.

Doing basic business planning like that will help you to run and grow your business, and it can be fun too. Remember it is cheaper to test your plans on paper then for real with your own money.

I wish you and your small business or start-up business, like SOHO-, SME, SMB-, Micro-, Lifestyle-, Home-, DIY-, Hobby-, Boomer- or Personal business, like professional, contractors, freelancer, self-employed, sole-trader and virtual assistants “Happy Planning and Success”! ST.

Related Items:

• How to Plan Cash-Flow Category.
• How to Bootstrap Category.