To Clients: Recession survival for small business

(April 2008) For better or worse, recent surveys show that small business owners are generally pretty bullish about the state of the Canadian economy. The optimism is heartening, but the downside suggests that many are not adequately prepared to withstand financial difficulties in the event of an economic downturn.

To get their attention, and to get started on helping them build financial contingency plans, download and customize this letter to send to your small business owner clients.

For more on this topic, please click here to read the related article, Small business owners ignore recession-proofing. Also, check out the related special report, entitled Advice for business owners, to read more about tax planning for small business owners and small business succession strategies.

Editor’s note: Since established and new business owners have very different planning needs, concerns and capital requirements, be sure to customize this letter carefully, making it appropriate for each client you send it to.

Dear [Client’s name],

Recent surveys show that many business owners are generally comfortable with the state of Canada’s economy today.

Truly, this optimism is heartening, but the flipside is also a little worrying: According to one study, 92% of business owners surveyed believe they can withstand financial difficulties, even though more than two-thirds say they have no contingency plans in place to help deal with difficulties that inevitably arise in the face of an economic downturn.

While personal and business savings will help you to weather future storms, it also pays to have enough emergency funds on hand, in case the slowdown is more drawn out than expected. Slimming down, cost-cutting, streamlining processes, identifying inefficiencies, then relying on cash-on-hand can all be part of a great business model, but it might not be enough to help see you through the tough times.

A well-known fact among business planners is that a few months of poor income can mean the end of a great business in its first few years of development. Even more established businesses can benefit from simple pre-planning measures, intended to make the lean times much easier to handle.

• Make sure you have access to a line of credit from a good commercial banker. This will ensure the business can survive and develop if a recession coincides with any critical years of business development. For a micro-business, this might mean establishing a line of credit tied to your home or other form of collateral that will ensure you receive a lower rate of interest.

• If your spouse or partner earns a good income from a different line of work, you can also try to use this to get preferential interest rates on an unsecured line of credit.

If you are more interested in selling your business at some point, keep in mind that it usually pays to wait out any economic downturn, if possible, before selling the business. Unfortunately, tighter credit conditions mean there will likely be fewer buyers in the market. Please keep this in mind and feel free to get in touch with my office at any time if you need advice or help in managing cash flow or your larger financial plan — it is your responsibility to let us know if there are any significant changes at play or on the way that could impact your financial situation.

Fortunately, awareness of succession planning is growing rapidly, with many resourceful people contributing to the business intelligence and strategies at our disposal and your disposal. Please feel free to get in touch if you would like more information about this, about tax planning or incorporation, or about the resources available to you and your family. I am always happy to hear from you.

Sincerely,

[Your name]

[Your signature]

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(04/21/08)