As Winston Churchill once said, “I never worry about action, but only about inaction.”

If you’re waiting to see how the economy will affect your business, you’re asking for trouble. Why passively stand and watch the world go by, when you could be taking steps to strengthen your business?

Cash is King

When the economy is soft, maximizing cash flow makes you stronger. Cash is always king, but now more than ever. Cash allows you operate from a position of strength. Among other things, it buys you…

• Leverage – Your suppliers need cash now, too; use yours to negotiate deeper discounts in return for quick payment. Need equipment or software? Now’s a great time for those with $$ to get bargains on major purchases.

• Price Protection – Don’t follow the crowd by slashing prices; if you have the cash, you can extend your payment terms instead. Giving customers 30 more days to pay may be more enticing than a discount. It’s certainly more profitable for you. (If you pay 6% interest, your cost is ½ of 1% for every 30 day extension. Sure beats a 5% or 10% profit dip!)

• “Headspace” - When you’re worried about money, it’s all you think about. That puts your business in greater jeopardy. Having cash lets you be effective today and plan for tomorrow.

• Opportunity - Interesting opportunities present themselves during lean times. If your competitor goes out of business, are you in a position to snap up his or her equipment and/or inventory? If you have cash, yes.

Maximize Cash Flow

So now that you’re convinced cash is king, how do you go about maximizing what you have?

1. If you haven’t already, establish lines of credit with your bank. That way, you’ll have cash on hand if an opportunity comes your way or if business lags.

2. Reduce your fixed expenses. Think about it creatively. Can you renegotiate lower rent in return for a longer term lease? Can you reduce your phone bills by cutting back on the number of lines? What can you change?

3. If you’re at the point of contemplating layoffs, why not turn fulltime employees into independent contractors? Then you pay only for the work that’s truly performed, while providing them some reliable income.

4. Focus on selling more to existing customers, whether by extending payment terms or creating other incentives. It’s less costly than acquiring new accounts.

5. Demand more for your marketing dollars. Advertisers are eager for your business now. But don’t make the mistake of cutting back on your marketing programs; it will hurt you in the long run.

What else can you do to protect your business? Join a peer advisory group!

Nothing forces you to stay on target than a monthly check-in with your peers. If you must make some tough changes—like layoffs—your peers can provide the support and discipline you need to take action.