Many business owners are discovering that their “pipeline” of business didn’t just decrease, it evaporated overnight.  As a result they have no plans in place of how to handle the dwindling economy.  The abruptness of the shift is creating fear I haven’t seen in the thirty plus years I’ve practiced law.

There’s no question you need to circle the wagons.  However, an immediate question is whether to incur credit to keep things going, immediately shrink your overhead, or head for the hills.

I believe your first step is to take an immediate inventory of what you may realistically expect as revenue over the near and intermediate term.  Then understand  your expenses and overhead.  If the expense side is greater than the income side, you need to shrink or borrow.

The decision to downsize is limited by how far you can shrink and still be able to perform your work.  Once you get down to the irreducible minimum, and you still project negative cash flow, you will need to borrow or liquidate.

For me, the decision to borrow or not is based on my ability to actually see light at the end of the tunnel rather than to continue to hope the end of the downturn is near.  You can listen to the pundits all day long but the bottom line is that they don’t know.  You can stretch for a while if your borrowing needs are small but at the end of the day, if you can’t see the end, its time to make the really hard decision.

The key is to be able to come back and fight another day.  Going out of business is much better than having to declare bankruptcy because you cannot repay the debt you incur to hold on.