® “In Nolo you can trust.” NOLO THE NEW YORK TIMES STOP THE RED INK NOW! Save Your Small Business 10 CRUCIAL STRATEGIES TO SURVIVE HARD TIMES OR CLOSE DOWN & MOVE ON Attorney Ralph Warner and Bethany K. Laurence, J.D. Free Legal Updates at Nolo.com e N O LSt orOy Dear friends, Since 1971, Nolo has worked hard to help Americans get a fair shake from the legal system. How? By producing books, software, forms and a website that translate legal jargon into plain English, off er clear instructions for routine tasks and break down complex systems into easy-to-understand components. All of our publications are relentlessly researched and tested by a dedicated group of in-house legal editors. And when we come out with a new edition, you’ll know that it’s been thoroughly updated. ere’s a reason why Nolo is not only the nation’s oldest, but also the most respected provider of legal information. 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Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea— consult an attorney licensed to practice in your state. Save Your Small Business 10 Crucial Strategies to Survive Hard Times or Close Down & Move On Ralph Warner, J.D. & Bethany K. Laurence, J.D. FIRST EDITION JULY 2009 Editor MARY RANDOLPH Cover and Book Design SUSAN PUTNEY Proofreading ROBERT WELLS Index MEDEA MINNICH Printing DELTA PRINTING SOLUTIONS, INC. Warner, Ralph E. Save your small business : 10 crucial strategies to survive hard times or close down & move on / by Ralph Warner & Bethany Laurence. -- 1st ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-1-4133-1041-2 (pbk. : alk. paper) ISBN-10: 1-4133-1041-9 (pbk. : alk. paper) 1. Small business--Management. 2. Business planning. 3. Business failures--Prevention. I. Laurence, Bethany K., 1968- II. Title. HD62.7.W376 2009 658.4'012--dc22 2009011899 Copyright © 2009 by Nolo. All rights reserved. The NOLO trademark is registered in the U.S. Patent and Trademark Office. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Nolo, 950 Parker Street, Berkeley, California 94710. Acknowledgments This book wouldn’t have been possible withoutT oni Ihara’s assistance, encouragement, and good ideas. We are also indebted to a number of businesspeople who generously shared their ideas and experiences, including Chuck Drulis, Laura and Kiran Singh, Rich Stim, Lori Clawson, and Kay Klaczynski. Stephen Elias, author of Nolo’s How to File for Chapter 7 Bankruptcy, provided big assistance in reviewing our debt and bankruptcy materials, as did Terri Hearsh in checking our financial calculations. And finally, and most importantly, our Nolo editor Mary Randolph did the inspired nipping, tucking, and reorganizing necessary to make our manuscript truly shine. Table of Contents Your Small Business Companion .....................................................................1 Can You Save Your Business? ...............................................................................3 1Stepping Back to Plan for the Short and Long Term ................................................4 Selling Your Business ..................................................................................................................7 Putting Your Business in Hibernation ...............................................................................8 Saving Your Business ..................................................................................................................9 Special Considerations for Different Kinds of Businesses ................................... 12 Don’t Ignore Bad News ............................................................................................ 25 2Why You Can’t Wait ................................................................................................................ 26 Cut Costs, Change Direction, Quit, or Sell ................................................................. 28 Decide How Much to Cut Expenses ............................................................................... 34 Act Slowly to Reverse Cutbacks ........................................................................................ 35 Control Your Cash Flow .......................................................................................... 39 3Keep Paying Your Bills on Time ......................................................................................... 41 How to Create More Cash .................................................................................................... 45 What Not to Do ......................................................................................................................... 66 Minimize Liability for Your Debts ............................................................... 69 4Are You Personally Liable for Business Debts? .......................................................... 71 Liability for Jointly Owned Debt ....................................................................................... 74 What Can Creditors Do If You Don’t Pay? ................................................................... 79 Prioritizing Debt Payments .................................................................................................. 88 Staying Out of Deeper Trouble .......................................................................................... 95 How to Protect Yourself From Further Personal Liability ................................... 96 Concentrate on What’s Really Profitable ..........................................103 5Getting a Quick Profits Plan on Paper .........................................................................105 Making Money in a Service Business ............................................................................107 Making Money in Retail or Manufacturing .............................................................113 Innovate on a Shoestring.....................................................................................117 6Invention ......................................................................................................................................120 Copying .........................................................................................................................................123 Serendipity ..................................................................................................................................126 Making Innovation a Continuous Process ................................................................129 Identify Your Customers ......................................................................................141 7Aiming at the Bull’s-Eye .......................................................................................................142 Filling in Your Target ..............................................................................................................145 Don’t Waste Money on Ineffective Marketing ............................153 8Market the Right Products or Services to the Right People ............................154