Nigerian Entrepreneur

How to Survive Economic Recession as an Entrepreneur

The United States of America and other nations in the world are currently experiencing Economic Recession.  This downward trend in the growth of the economy is having adverse effect on global businesses. The Stock Market Crash is a good pointer at this difficult economic times.  The question an average entrepreneur wish to ask is, How can my business survive this difficult economic times? To answer that question, we need to consider some facts.

First we need to understand the fact that, irrespective of how careful an entrepreneur has been, sudden changes in the business climate can have adverse effect on his business. For example, sudden change in Government Economic Policies, rising Inflation, sudden change in Interest rate, Sudden Changes in the International Markets, Wars or Civil Unrest etc can adversely affect the economy of a nation thereby creating difficulties for business owners. Be rest assured that such events will always occur it is just a matter of time!

Economic Recession will always occur

The economy of each nation goes through a certain cycle, Economic Boom, Economic Recession, Economic Recovery and then Economic Boom again. Over decades you can actually map out the trend. However, nobody can really predict when a new stage in the cycle will start or stop. So what can an entrepreneur do?

A smart entrepreneur understands the fact that only change is certain! Also, he understand that he has no control of when economic recession will occur. He also knows for certain that at one point or the other the economy will enter a new stage, then it is better to prepare for such unexpected difficult economic times.

There are four principles that successful entrepreneurs have used from one generation to another to survive such difficult times. Those who use the principles find themself well prepared to face difficult economic times and some even prepare themselves to grab opportunities that are available at such times (one man’s loss can be another’s gain). Here are the four principles.

1. Spend Less Than Your Income

This is a timeless principle that insures against adverse economic situation. Always keep your business overhead low. Be stingy with your expenditures and generous with savings and investment in real assets. This will pay huge dividend when economic crunch occurs.

2. Avoid The Use of Debt

As much as possible, avoid building or running your business with debt. Loans from banks, excess credit facilities from suppliers are icebergs that will sink your business fast whenever there is economic recession. Such creditors can mount pressure on you to recoup their money and you will be under tension and prone to make foolish business decisions.

As a wise entrepreneur, build up your working capital over time with retained profits. Always delay gratification in other for your business to gain financial muscle. Remember a loan can easily multiply in value during economic recession. Don’t get caught in such mess!

3. Maintain Liquidity

It is always good to have liquid or near liquid fund that you can use for your operational expenses. During economic recession, liquid cash will be scarce and interest rate will be high. It is therefore not a good time to ask for loan to run your business.

You must be liquid enough to sustain your working capital. If you default in meeting your day to day financial obligation, your thriving business can be forced into bankruptcy by creditors. Bad news travels fast, your inability to pay a supplier when it is due can send a negative signal to other creditors and they will all come demanding settlement at the same time.

Even though your business is having a good net asset (that is, your assets are more than your liabilities) you can still be forced into bankruptcy by impatient creditors suing you for default in payment. Bankers  also can be very terrible during economic recession and they are quick in raising dust once you default in loan repayment. So, keep your business liquid.

4. Set Long Term Business Goals

Having in mind that the economy tends to follow a usual pattern of boom, recession, recovery and then boom, it is wise to set long term business goals that take such trend into consideration. Do not be carried away with excitement because you are making good income during an economic boom season. Instead, it is a good time to plan and prepare for a financial shelter that will safeguard your business when the economic season changes.

Conclusion

We cannot prevent adverse economic seasons, but we can get ourselves well prepared to survive such adverse economic times and even gain from it. We can do this by Spending less than we earn, Avoiding the use of debt, Maintaining Liquidity and setting long-term business goals. Those business principles have empowered smart entrepreneurs to survive difficult economic times in the past and some even had opportunity of buying the business of ill-prepared entrepreneurs. To get future updates to this post How to survive difficult economic times, please subscribe to Nigerian Entrepreneur RSS, Cheers.

Tags: Business Tips, Economic Recession, Economic Trends, Entrepreneur, Financial Shelter

This entry was posted on Wednesday, October 22nd, 2008 at 9:46 am and is filed under Entrepreneur, Financial Intelligence. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.