Dec 1, 2008

Individuals and businesses everywhere are looking for advice on how to handle the current economic situation. Americans have experienced recessions in the past and there are some tried and true tips that will help you keep your head above water — or maybe even thrive.

Tips for Managing Economic Situation

Here are the top 10 tips we have shared with our clients in recent months. Following them will help ensure your survival.

1. Stay positive. Thanks to the media and information, we always have information at our fingertips — which can be both good and bad. Take the news in stride and remain positive.

Unfortunately, we probably haven’t hit rock bottom yet, so don’t panic. Good can actually come from bad.

2. Live within your means. Don’t spend beyond your means. Create and live by a monthly and annual budget. Know how much you can spend and how much you need to live.

And when contemplating a purchase, ask yourself if it is a want or a need. If it’s a need, prioritize it with other needs in terms of importance, and determine when and how it will be paid for. If it’s a want, don’t get it until your needs list is empty.

Most importantly, remember that just because you qualify for a loan or a credit card doesn’t mean you can afford to pay it back.

3. Invest wisely. When investing, choose a direction and stay the course. Don’t let every piece of bad news affect your behavior.

It’s also important to have advisors you can depend on during these times.

4. Manage your debt. Where possible, get out of debt by paying off your mortgage, unsecured debt and credit cards. These are guaranteed a return on investment of at least the interest rate on the debt.

If you are already in trouble, get professional debt counseling and destroy your credit cards.

5. Save regularly. Create and stick to a savings plan that is consistently funded with each paycheck.

This serves at your emergency cash fund. This holds true for individuals as well as businesses.

If you have children, teach them about saving, too. Consider paying them for the work they do for you or for getting good grades. But allow them to spend only 50 percent of what they earn, with the balance going to a savings account in their name.

6. Spend cautiously. Consider discretionary business spending and investments carefully, evaluating if they will pay off both short- and long-term. If you can wait six to 12 months without losing out on the benefit, it is probably better to wait.

If making the investment now does not create excess risk and there is a near-term benefit, then move ahead cautiously. Don’t make decisions that will put the entire business at risk of survival.

7. Look for efficiencies. This is a good time to look at business processes, both manufacturing and otherwise, and make sure they are as efficient as possible. Talk to your front-line employees about where they see waste. It’s a good time to minimize inventory and work-in-process and to make sure that cash flow is strong.

8. Plan for taxes. Don’t forget the IRS. Make tax planning a part of your budget. This is especially true for small business.

9. Put customers first. Client service is still the best way to keep your business sharp. Stay in touch with your customers and make sure they are getting the service they want.

10. Keep your financials strong. Keep your company safe and strong, if possible. Weaker competitors may not survive and if you can stay prepared and limit your risks, you will be able to take advantage of opportunities that come as the economy begins to recover. Exploring new product lines may be an option.

And, have a contingency plan in case business slows down. Know what adjustments you need to make and in what order you need to make them. Consider all options — from working four days a week to saving on utility costs, to getting lean. Try not to lay off workers, though, because it sends a bad message. Consider wage reductions for management as an alternative.

Finally, stay on top of your accounts receivable and manage your cash flow. When the economy gets tough, cash is often king.

This article was originally published in Facing Today’s Economic Challenge Head-On: A Special Report by Rea & Associates, Inc.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.