Recession identifies, removes some bad financial practices

It's been so long since we've had a recession this bad - July 1981 through November 1982 - we've mostly forgotten that thinning the herd is one of the things recessions do. And there's no doubt: The small business herd is being thinned.

There are positives among the wreckage, however:

* Effective cash flow and financial management do make a difference.

* So does awareness of the marketing, sales and customer relationship processes.

"There's going to be a sheer reduction in the number of small businesses," says Kriss Knowles, director of the Illinois Small Business Development Center at Elgin Community College. "The stronger businesses are starting to see signs of an upturn, but the recession clearly has separated the good (businesses) from the bad."

That's an opinion shared by many small business advisers. Their reasons encompass both finances and management.

"What was different this time is how quickly credit relationships changed," says Andrew Keyt, executive director of the Loyola University Chicago Family business Center. "(Our family businesses) are starting to see more lending, but the hoops they must jump through are huge."

Keyt notes that, "Families that have been doing the right 'family work' (communicating with each other, for example) are doing well." But, he adds, "The crisis has shed light on family problems that had been ignored. A good economy covers up a lot of family issues."

Not every small business is hurting.

"I'm seeing more optimism when I'm out in the community," says Bonnie Richter, director of the Illinois SBDC at Harper College offices in Schaumburg. On the other hand, Richter continues, "I've never seen more people in financial distress. Some people completely break down when they talk to us."

Many of the businesses that turn to Richter and her staff "are out of money. Their credit card balances are high, and the card companies have cut off their credit. It's not just the economy," she says. "It's the way they had been managing their business."

David Gay, Illinois SBDC director at COD offices in Lisle, reports that "some businesses - those with a well-defined target, a unique selling proposition and an ability to serve their existing client base - are doing surprisingly well." Others, however, "have gone out of their financing covenants and discovered that new funding sources are tough to come by."

Partly as a result, Gay hears "so much talk" about stimulus financing.

Federal stimulus dollars are funneled through the Small Business Administration. The most publicized plan, interest- and fee-free recovery loans, can provide up to $35,000 in short-term financing help for "established, viable small businesses." Stimulus dollars also will temporarily eliminate fees on SBA 7(a) and 504 loans.

Details, and there are many, are at www.sba.gov/recovery/index.html. Click on Investing in Small Business: 2009 Recovery Act.

• Questions, comments to Jim Kendall, JKendall@121MarketingResources.com. © 2009 121 Marketing Resources, Inc.