(posted 6/14/98)

This excerpt from the Paul & Sarah Edwards classic, "Working >From Home," outlines tips and tools you can use to protect yourself from financial crises.

The most difficult time to manage your money is when there's too little to manage. There are several things you can do to protect yourself from the woes of feast or famine, peaks and valleys.

• Keep a reserve of cash on hand. Bruce Michels, president of Management Advisory Services Consulting Group, advises small businesses to have $2 of current assets on hand for every $1 of current expenses. Accountant Michael Russo says your cash cushion should depend on your own comfort zone. While some need a $10,000 reserve to feel secure, others require more. Still others need considerably less. Find your level of security and operate within it.
• Market constantly. Set aside at least 20 percent of your time each week for marketing activities and do this all year long, even when you have business. Don't slack off your selling effort when cash flow is great. There is always a lag time between marketing efforts and marketing results, so keep selling every week.
• Track your income and expenses. Project your expenses and anticipated income at the beginning of each month. Post all due dates. You'll find that establishing this habit will prove invaluable. You'll always know exactly where you stand and you'll be alerted when you need to take action either by deferring costs or accelerating you marketing effort. You'll also know the moment someone is late with payments.
• Plan to make the most of slow times. Most businesses go through periods of time that are slower than others. For example, holiday seasons are great for party planners or gift-related businesses but not so good for business consultants or training professionals. Anticipate these periods and devise special marketing efforts to attract business during these periods. For example, private-practice consultant Gene Call, who teaches professionals how to market their services, finds holiday times are slow for him so he runs a year-end promotion. Anyone signing up for his January training program in December gets a juicy discount. Word processor Evalyn McGraw finds Augusts are routinely slow so she builds up cash reserves in June and July and plans her vacation for August. Before she leaves, however, she sets her late-August marketing plan in motion so that when she comes back there will be business coming in.
• Create various income sources. Another way Evalyn managers her cash flow is to offer several adjunct services. In addition to straight word processing she provides editing and indexing services. She also teaches university extension program writing courses at a local university. So if one area of her business is slow she can rely on other areas. She finds they are rarely all slow at once. You'll notice, however, that Evalyn is not offering a variety of scattered services that dissipate her efforts or confuse the public about what business she's in. She isn't selling real estate and offering fitness training simultaneously. All her services are related and, in some cases, ancillaries to word processing.
• Continually upgrade your skills and improve your business. Grow with your business. Don't get caught in the rut of offering the same services and products year in and year out. To spark sales add new lines, offer more advanced techniques. And you shouldn't wait for sales to wane. Every change you make in your business provides an opportunity for promotions and gives you a good excuse to contact present and past clients about what you're doing now.
• Network, network, network. Make regular contact with colleagues, clients, and associates part of your ongoing weekly marketing. Participate in professional, trade, and civic organizations so you'll be abreast of new market trends and the latest breakthroughs; this will also help you generate referrals and find out who needs you right now. Don't overlook regular congenial contact with your competitors. They may be overloaded just when you're slumping. Offer to help them with business they can't handle on a subcontract basis. More and more independents are forming consortiums to take on large projects and refer work to members. Consider joining or forming a consortium of people you are comfortable working with.
• Remember, you're in charge. Sometimes it may seem as though your cash flow has nothing whatsoever to do with your efforts. You may feel you are being tossed about at the whim of fluctuations of the economy, the seasons, or your market's fickle passions. In actuality, if you take charge, you'll be in charge. You aren't dependent on the wishes of a single boss who can fire you on a moment's notice. All your clients would have to fire you before you'd be out of business. You're ingenious, talented, and creative or you wouldn't be in business in the first place. There is always some way for you to serve others and thereby keep the cash flowing in. If you start feeling out of control, just focus on that reality.

Paying Bills to Maximize Your Cash Flow

Here's a simple but effective manual system developed by Ray Martin, president of Microcomputer Applications, Inc., of Austin, Texas:

• Check the day's incoming bills and invoices for accuracy and discounts offered for quick payment.
• Determine the best date to make payment of each bill so that you will neither be overdue or early in making payment. Then write a check.
• Place the check in its envelope; stamp and seal it.
• Code the envelope in the lower right corner with the necessary mailing date. Allow three days for local delivery, seven days for cross-country mail.
• File the envelopes in chronological order.
• Each day, mail those bills earmarked for that date.

Reprinted from Working at Home, 4th edition, by Paul and Sarah Edwards. Copyright © 1994 by Paul and Sarah Edwards. Used by permission. Published by Jeremy P. Tarcher/Putnam, a member of Penguin/Putnam, Inc. http://www.paulandsarah.comóThe place to help you be on your own but alone. Information, inspiration and marketing ideas for home and small business from the nation's self-employment experts.