Times Are Rough, So Think Smart and Profit

Chances are, you don’t need a reminder from me to know that the economy is suffering, financial institutions are collapsing, the real estate bubble is popping, people have lost their jobs, getting access to loans and other credit is stiffening, and federal bailouts are occurring. There are those that choose to live in a world of ignorance devised of pretending that our situation is not as bad as it is now, nor will it get worse. “The worst has come!” they say, and “Now is the best time to buy!” These super-optimists slow down the inevitable crash of our economy so that those of us that are paying attention can take the action necessary to protect our assets and thrive during hard times. Take a minute and try to decide which person you are; seriously, think about it.

If you believe that the worst has come to the US and world economies, then perhaps you believe the next 5 years is filled with a joyful rise in the stock market, endless consumer purchasing, extreme real estate speculation — you should stop reading this article right now. I’m not going to try to convince you otherwise!

Otherwise, if you believe that we’re in bad times, and headed for something nastier, I invite you to take this time to identify what things you need to change in your life to thrive during this time. Here are a few things you can do to help your business survive (or even start) during a period of duress:

  • Spend less.
    This may sound obvious, but you need to stop spending so much. You may think you’re frugal now, but there are always things you don’t need that you keep buying. Was it necessary that you brought on all those extra consultants? Do you really believe that those fringe benefits are directly contributing to your profitability? Make some needed cuts, and start developing a “Do I really need this?” mentality.
  • Start saving money.
    Cash is king in a world that is suffering. If you can manage to save up extra money now, you’ll be able to buy up assets and resources when things hit rock bottom. There won’t be much (if any) financing when everything is down! You’re going to need cash. Imagine when you have an opportunity to buy that $950,000 3-bedroom house that will eventually drop to $350,000. Or, when BMW and Mercedes starts to offer extremely steep discounts to clear their inventory because no one else is buying. If you don’t have cash when the deals come knocking, you’re missing out.
  • Use lower cost alternatives to services.
    In many cases, we’ve standardized on using nothing but the best when it comes to services and products for our businesses. But there are a tremendous amount of alternatives to everything we use, many of which offer similar (if not superior) quality, but for a drastically lower cost. Seek them out, because you might just be surprised to find out that you can barter a little more with someone else.
  • Bank with a reputable bank.
    Banks like Wells Fargo and Bank of America will not go under. Why? Because they take on a much lower quantity of high risk debt. Seek out banks that have a track record of taking on less risk, but provide higher interest rates. If you look carefully, you’ll find banks offering 3.5% and above for savings accounts (ING Direct), and considerably more for money market accounts. Why do you have tens of thousands of dollars sitting in a traditional savings account earning less than the historical average of inflation?
  • Avoid rising above FDIC limits in your accounts.
    I don’t care who you are, but putting more than $100,000 in a checking, savings, or money market account is just asking for trouble. The FDIC insures accounts up to $100,000 per account type per bank. Anything over that, you risk losing (and at a minimum, at pennies on the dollar) when the bank fails and needs to be bailed out. There are billions of dollars in accounts that go uninsured because they’re over the limits. Take the time to setup additional accounts and split your capital up across them. Like the cliche says, “Don’t put all your eggs in one basket.”
  • Always put 20% or more down when buying property.
    I know it seems appealing to buy that car for 0 down, or that piece of property for only 5% out of pocket. Unless your payments are considerably less than 20% of your monthly cash flow, you’re making a huge mistake. Should your cash flow come down, you’re going to be living in hell. Putting 20% or more down makes you truly think about what it is you are buying, and it increases your chances of financing. Some lenders are actually requiring 20% down now.
  • Help others save money.
    If you build in the ability for people to save money into your products, they’ll buy your product, even during a recession or time of economic stress! Would you pay $5 for an iPhone application that helps you find the cheapest gas nearby? What if your services were all by phone and the Internet, instead of continually requiring your clients to come into your office? Perhaps you can even offer your product for 50% cheaper than your best competitor, and spin it as saving 50% to your clients.
  • Telecommute more often, even with your clients.
    Work with your clients, vendors, employees, and consultants to telecommute more often. Everyone benefits. There are a few hurdles with it, but the benefits outweigh the problems. Your top performing staff will think twice about going to your competitors if you offer them perks that benefit them, but without costing you.
  • Strengthen your network.
    Now is the best time to start revitalizing your network. Do it before the situation gets worse, because when times are rough, you’re going to want to lean on your network. I’d be willing to bet that most of the people in your network are not yet prepared for what is coming. This means, when that time comes, they’ll be asking you for favor, and returning them in exchange. Take the current moment to reach out to the people in your current network, and offer them a hand. Additionally, spend some time meeting new people at local business groups, on Twitter, and LinkedIn. Offer your new friends something to show your level of commitment.
  • Increase your cash flow.
    Last but not least, find ways to increase your cash flow. You should be striving to grow your revenue every month. New streams of income are hiding all over the place. Put advertisements on that newsletter that you send out every month. Start a blog. Create simple side products that reuse some of what you’ve already built — a simplified version of it. Share a piece of what you’re good at in a PDF and sell it.

Many of these may seem incredibly obvious, but I’m willing to bet you don’t even try to do most of them. Give it a shot, focus on them, and see where you stand in 6 months. Come back and let us know how you did.

36 thoughts on “Times Are Rough, So Think Smart and Profit

  1. Great article, Kevin! Extremely useful tips to help everyone through the economic crisis that we’re currently going through, and most likely will be going through for a while.

  2. Amy says:

    How true. Most of your article sounds like common sense yet many people do not realize it. I can honestly say that many employers do not realize some of the wonderful things they can do for their employees that will not cost them any money or better yet save them money. I am dreading the harder times coming!

  3. NatakRane says:

    Kevin, This is such a valuable information which you have given at this period. Just Yesterday, my friend was saying of switching his bank & today today you give a better explanation for that. Also, I liked your idea of Helping others which I think will be helpful to me.

  4. Brennan says:

    Thanks for the great advice. It’s sensible and smart and anybody could do it. If only corporate America could follow this same type of advice, we might not be in the economic state we’re in.

  5. Darius Bunch says:

    All I can say is wow…. I have been told a few of these over and over again, however, I was never really given the reason why. You did a great job providing the reason behind the need for changes that must be made in this economy, by everyday people. I will admit that you are right, a lot of this is common sense, but most individuals (including myself) have been guilty of failing to follow some of these common sense rules.

  6. I write frugal living articles for see stretcher.com and capitalistchicks.com, as well as science fiction and horror. The tips on for financial frugality here actually include some I haven’t seen elsewhere, which makes the content all the more valuable.
    “If your outgo exceeds your income, your upkeep will be your downfall!” But many businesses tend not to watch nickel and dime expenses until they go too far in the red – then they cut the fat and into the muscle.
    A timely article.

  7. Kelly says:

    This post has a lot of great ideas for weathering the crisis. I am especially intrigued by your classification of people, some who think that the market is at its worst point, and will quickly improve. I never considered the fact that those people may be the reason our economy is still bumping along. Great saving money tips, that can be used for both consumers and business owners. We have gotten too spoiled, demanding the best, when in a lot of cases, average or above average will do.

  8. Nataly says:

    I loved this article. Who would ever have thought our BANKS would be going out of business. The people who say that things are going to magically get better are just naive.

    I liked the idea of the 4 day work week that they were going to implement in ILlinois. Telecommuting is also a great idea. Saves SOOO much on gas.

    Great post!

  9. I think your statement about always putting at least 20% on large purchases such as automobiles and property is the real gem of this article. So many people would have saved themselves so much grief simply by following this rule of thumb.

    Telecommuting is one option I wish more business owners could be convinced to adopt. The potential savings are enormous. Telecommuting saves fuel, reduces pollution, reduces the need for square footage and reduces overhead, cuts down on employee stress, and increases productivity.

    Thanks for your run down of not-so-common common sense tips. I’m off and running with your suggestion to help others save money to increase my cash flow!

  10. Actually, that last point is the one that I have always talked about a lot. All of the others is good advice, and people should be doing this as a matter of course (good economy or bad).

    But if you are salaried person (like I am), you should always have other sources of income. And yes, blogging, freelancing, etc. are the most popular ways these days.

    Nice writeup overall.

  11. “Cash Is King!” Words uttered frequently by my “hero”, Dave Ramsey. While Mr. Ramsey gives out fantastic financial advice, some of your points were ones he has not covered (or, that I did not hear him cover.) Currently, my husband and I are bent on increasing cash flow, and saving it. Dear Husband claims i have the “Do I Really Need This?” mentality down to a science.

    Keep the tips coming Kevin! Fantastic job thus far!

  12. tasha s says:

    Good, sound, understandable advice– something badly needed right now, as is the optimistic tone. Thanks, Kevin, I needed this 🙂

  13. Erin Ward says:

    This is a really great article. I’m not actually a business owner, but a lot of the advice can be scaled down to personal economy as well. Thank you for the wonderful advice, and if I ever do own a business, I’ll know who to come to for advice!

  14. Some additional thoughts: Allways have a plan B. If the house is burning it’s too late to decide which fire extinguisher is the best. Start making emergency plans when times are good.

  15. Busted says:

    Great advice, practical for all purposes. It will definitely help break the fall and the suggestions can easily be implemented. The blog is enlightening in more than one way and applicable to people globally.

  16. mithiladarpan says:

    You have very logically explained the prevailing situation and like an true academic have put forth the solution as well.The golden rules you have asked to emulate is not easy for a lay person, unaware of market intricacies,to follow. Even “Pundits” find it tough to stick to financial discipline in this kind of market mayhem.I would like to ask you that is it possible to time the market?Cash is king always but is it not the right opportunity for an average American to go for the dream home? I found this article very useful and have bookmarked it for my reference.

  17. Thats some solid advice. People need to exercise a small amount of discipline and alot of money can be saved. In the last 2 months my wife and I have canceled the pay cable channels and voip phone saving us over $60 a month. Thats an extra tank of gas or extra money to pay down the credit cards. We also traded our pickup for a regular car which saved us another $100 in fuel costs alone not to mention a lower payment.

  18. lorenzp233 says:

    I believe this blog was definately helpful. It opened my eyes more about the crashing economy and provided me with tips. It particularly brought to my attention the bank situation, since just recently my bank was going under some trouble. This blog gave me insight into what banks I should really trust and it provided me with more things to look out for

  19. chelle123 says:

    Great article and so very true. I think this type of advice should have been followed even before the current economic crisis. It is only commonsense that people can’t run on credit forever without falling. We are a small mortgae and no consumer debt household. I am very grateful we did the hard work to get to this state with our current economic crisis.

    I really liked:

    “Help others save money.
    If you build in the ability for people to save money into your products, they’ll buy your product, even during a recession or time of economic stress! ”

    I’m going to try to dream up ways to apply that in our shop!

  20. Scott says:

    These are really good tips and are good for businesses and the public. I truly believe that we are heading for the worst economic crisis since the great depression and I fear it may surpass that even. I do not suggest running on the banks, as that sort of panic will only make the situation worse as we have already seen with the recent collapse of current banking companies. I do believe that changing your business practices to add additional safety measures is necessary. You must, as a business person, look to the future by learning from the past. Be smart and be proactive. Do not wait for the shoe to drop. Pick that shoe up and take charge of it! Great article and great suggestions. Like you, I feel they are obvious but not all businesses see the obvious.

  21. Emanuel Souza says:

    I wouldn’t say I’m really alarmed by the current situation. Still, your text provides some good advice that should be kept in mind even by those who think that the worse has come and that things will be better from now on. One should only trust the opinion that the economy will get better if one does something to turn this opinion into truth.

  22. DanL says:

    I agree completely. With the economy in a temporary downturn, we need to hold on to what we have. Reduction in spending is very hard, but ask your self this “Do you want it or do you need it?” If you want it, you don’t need it. Save your money. That is the key to this whole thing. Great tips on how to tackle a suffering economy. Although, just a different perspective. The economy wouldn’t have been half as bad if nobody sold any stock. Let the few giants fall, keep your money in your other investments and this panic would be far less intense than it is now.

  23. Shonnabella says:

    What a great blog post.
    I don’t have a business, but I come from a family of entrepreneurs who are all taking the action you spoke of. Making sure that there isn’t too much in one account, making staffing cut backs where they absolutely have to, etc.

    It’s amazing to me that there ARE people think it’s nothing and that it’s going to get better once the new administration gets in. I do not understand that mentality, especially when you look at the candidate’s economic plan. It’s relatively worthless, in my opinion.

  24. sonica says:

    Your article is wonderful with suitable tips on how to cut down costs. The economy is undergoing trpubled times and with the bailout package being rejected, we sure dont know what else is likely to happen. I have friends who work with big corporates have found that they have started implementing some of the measures suggested by you. Teleconferencing is resorted to by more business houses to cut costs on travel and hotels.
    What I really like about your article was the clear steps suggested by you for cost cutting. Nice work, keep it up. Looking forward to more such articles from you.

  25. Thank you everyone for the great comments. This article has sparked quite a bit of interest, judging from the traffic logs.

    pwan: As for the FDIC limits, this has caused a lot of debates in my colleague circle, and I can’t seem to get a straight story from anyone. Some people say “per account type, per bank”, others say “per account per bank”, and still others say “per bank”. I will put that to end.

    Right from the FDIC website at http://www.fdic.gov/deposit/deposits/insuringdeposits/

    “The basic insurance amount is $100,000 per depositor per insured bank. Certain retirement accounts, such as Individual Retirement Accounts, are insured up to $250,000 per depositor per insured bank.”

    It goes on to say:

    “The FDIC provides separate insurance coverage for deposit accounts held in different categories of ownership.”

    It then described those categories as:

    “The most common ownership categories are: Single Accounts, Certain Retirement Accounts, Joint Accounts, Revocable Trust Accounts”

    It then describes Single Accounts as:

    “These are deposit accounts owned by one person and titled in that person’s name only. All of your single accounts at the same insured bank are added together and the total is insured up to $100,000. For example, if you have a checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $100,000.”

    So I do apologize that my article may have been misleading, but it wasn’t incorrect. You may have more than one account type, up to $100,000 per account type (with the exception of IRAs, which is $250,000). Your total of all Single Accounts must total $100,000 at most.

    Keep those great comments coming in!

  26. Maria says:

    Kevin – great article as usual! The first item caught my eye, coming from the POV of someone who works for a consultant. I had a funny discussion with my older, supposedly wiser, sister who just finished her MBA. We had an “argument” that in these times, people should INCREASE their advertising and marketing spending. I wanted to laugh at her naivety. I’m younger and don’t have an MBA from a fancy Boston school, but I do work for a very small business. We just lost 2 accounts this year – both in the construction industry. Obviously she was preaching from an academic POV and in theory, yes you should market your business more aggressively, but that’s not how it works. We all know that marketing and advertising are the first to go in troubled times – the number crunchers see this as spending as superfluous, especially when you’re struggling to pay other vendors and make payroll.

    The rest of the article is pretty solid though – I hate to be snarky, but I’ve always wondered what kind of people even HAVE $100,000 but not-so-smart to research and know about FDIC insurance?

  27. amyinindy says:

    I work for a family business, and I find this to be a very scary time. I would like to agree with everyone who believes that the worst has already occurred, but I am realistic and believe the worst is yet to come. I’m not as well-versed in history as I should be, but I bet people were saying the same thing right before the Great Depression. And of course, we all know, that during that time, the bottom seemed to fall out again and again and again …

    I actually found this blog entry to be thought provoking. Thinking about saving money now to buy assets at a discount later is a great tip both for individuals and businesses. On a personal level, I hope to buy a house in the next couple of years, so maybe my timing will be perfect, especially if I start saving my money now.

    Thanks for the good ideas on several levels!

  28. Knowing what to do and having the discipline to do it are two completely unrelated things. It’s like the Financial Adviser with bad credit who gives really good advice to his/ her clients on avoiding debt. Or the overweight person who gives great diet advice.

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