J. Roy Miller, State Director, NMSBDC

With gas prices climbing and commodity costs ascending in their wake, business owners are looking closely at their budgets for ways to compensate for these unexpected expenses and keep their books in balance.

This is particularly true in industries with long-term contracts. The owner of a large construction firm recently confided that his biggest challenge is how to stay within budget on a fixed-price, three-year, $7 million job when materials costs are skyrocketing.

Rising prices are just as serious for small-business owners not saddled with long-term contracts, whether their revenue is in the thousands or hundreds of thousands of dollars.

But shrewd entrepreneurs realize that every economic crisis presents an opportunity — in this case an opportunity to determine where costs can be cut and revenue collected.

A tourniquet on costs

Start by looking closely at all areas of your business, beginning with operating costs. Are you using all your office space and equipment? If not, consider subleasing the excess to generate income.

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Mary Schmidt, Marketing Advisor, The Loan Fund

Even if people shop at real stores, they use the Web first to research products, find service providers or stores and get directions. Without a Web site, you miss out on this traffic.

But finding someone to design your Web site can be a challenge — especially when bids on the same specifications can range from $500 to $15,000 (and some of the worst sites cost the most to create).

Before thinking Web, think results. An online store isn’t separate from your “real” business: It’s your cyber storefront, and it’s open for business all the time. Just as you wouldn’t expect a great store on a back road to generate much business if you never mentioned it or visited it, you can’t expect automatic sales just because you’ve opened an outlet on the Web.

The fundamentals of online and offline marketing are the same. You still need a plan, good products, great service and the ability to communicate all this to potential customers. Remember those e-commerce sites you’ve visited only to abandon your cart without buying anything? Or the marketing agency whose site was so creative you couldn’t find out what they did or how to call them? You don’t want to make the same mistakes.
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Leslie Hoffman, Director of Lending and Client Service, ACCION New Mexico

Have you ever gotten midway through a vacation to discover you’ve already blown through most of the money you saved for the trip? You probably didn’t pack up your bags and go home. Instead, you may have taken a look at your trip budget, compared it against what you had actually spent and made some adjustments in your personal finances to enjoy the rest of the journey.

Owners of small businesses can run into the same problem. By keeping an eye on monthly changes between budgeted costs and what is actually spent, adjustments can be made to improve the situation.  Budgets can help determine how well a business is performing by comparing expected costs with actual costs. It is important, however, that you adjust your budget to reflect actual sales so that you will be comparing apples to apples. This is called flexible budgeting and it can illuminate changes you can make that may improve the performance of your business.

For example, let’s say the owner of a gift basket business is having a hard time figuring out how to make more money on her high-end baskets. She planned to sell 1,000 baskets last month but only 900 were sold. Midway through the month when she saw sales were lagging a bit, she reduced her price to try to boost sales. She didn’t think the reduction in price would hurt too badly because she was also able to reduce some of her costs by making fewer baskets. So why did her revenue turn up shorter than expected?  To find the answer, she must adjust her budget to the actual sales volume of 900 baskets before comparing it to her actual costs.
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Sandra Taylor Sawyer, Director, SBDC at Clovis Community College

A mistake many small-business owners make — especially when the economy is on solid ground and a business seems healthy — is failing to monitor their financial position. Such neglect can have catastrophic consequences in times like these, when orders are falling and money is tight.

To see where your business stands, start with your financial statements. All businesses should have monthly or quarterly financial statements prepared by a bookkeeper or accountant. Waiting until the end of the year when reports are needed by the IRS or a lender robs you of an opportunity to make midyear corrections if the numbers warrant it.

Financial statements consist of the balance sheet and income statement, also called the profit and loss statement or statement of revenue and expenses. A third element, the statement of cash flow, should also be compiled.

The statement typically overlooked by small-business owners is the balance sheet, which offers a snapshot of the business’s health. The balance sheet should be reviewed before you buy equipment, hire employees, expand the customer base, extend credit or initiate advertising. It’s a daily account of the business’s assets and liabilities and the owner’s equity transactions.

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Kim T. Blueher, Director of Lending, WESST Corp.

America’s debt crisis is a collective one. Our government is spending beyond its means, and so are businesses and individuals.

How much debt is too much? When we can’t afford to make payments on time.

How did we get here? Sometimes we spend too much. Sometimes divorce, illness or unexpected unemployment affects our ability to meet financial obligations. A sudden drop in sales can evaporate cash flow for a small business. And if loan payments are late, that business might have trouble ever getting another loan.

A successful relationship with your creditor depends on communication. At the first sign of difficulty, warn lenders of your predicament. They will respect you for taking responsibility and are more likely to be flexible about restructuring your payment plan.

I recently received a letter from a borrower who owns a small publishing business. She had lost an order, income was down and she worried about her ability to make payments on time. She wrote all her creditors to alert them and said she would do her best to meet payments. To date she has not missed a payment, but if she does, I’ll know why and be prepared to work with her.
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