5 Tips on Budgeting for Future Growth in Lean Times

For many multichannel merchants, maintaining a profitable business has become increasingly difficult in recent months. While attracting and retaining customers will always be vital to catalogers, today’s economy makes it crucial to have a solid understanding of financial planning and budgeting in order to achieve long-term success.

Here are five tips for catalog/multichannel merchants on how to develop and improve budgeting and financing strategies to help weather a down economic climate.

1. Plan not to fail. According to the most recent Small Business Monitor, a semiannual survey of business owners conducted by American Express OPEN, uncertain economic conditions and the rising costs of doing business are the biggest challenges small business owners face in growing their businesses. The best defense during an uncertain economic environment is a solid plan.

Write down 10 challenges your business faces and then ways you can overcome them. This list will help address potential pitfalls, including rising postage rates and fuel costs, long before they affect your business and your customers.

2. Line up several sources of financing. Get a jump on potential problems by lining up several sources of financing. Match the sources and uses appropriately. Use short-term financing options such as lines of credit, short-term loans or credit cards for short-term cash needs, and long-term or secured loans only for the purchase of long-term investments.

3. Budget pessimistically. Overly optimistic projections could cause trouble for business owners. Remember, nothing ever goes exactly as planned. So pad your budget with a little extra to accommodate a down economy.

4. Examine do-it-yourself financing. When asked in the Small Business Monitor, small business owners said they plan to use personal or private funds as the primary source to address any cash flow challenges that arise. Investing your own money in your business can help get you through rough economic times, but it’s important to minimize personal risk and maximize cash flow.

5. Start building a reserve. Businesses should have up to six months of cash in reserve. If you don’t have money tucked away, design a plan for your business to build savings over time. Turn to your accountant or other financial resources for help if this savings goal seems unattainable.

Raymond Joabar is senior vice president and general manager for American Express OPEN, the nation’s leading issuer of payment products for small business owners. His finance and budgeting tips are taken from “OPEN BOOK, A Practical Guide for Business Growth.”