I was surprised to realize that many businesses, especially in the tech sector, learned from the mistakes of their ancestors. It has been this resilience that prompted me to put together a short list of ways small businesses can survive the current crisis - and even come out on top at the end.

1. Cash is King - Regardless of the size of your businesses, cash is going to be king over the next 18-36 months. Up to even a few weeks ago you could pretty much count on your local bank giving you a small business loan or being approved for a business-use credit card. Unfortunately, the liquidity of the market has “thickened” dramatically and has made those opportunities shrink to almost nothing. You’ll no longer be able to rely on loans and credit to get you through the month. From now on… cash should be your #1 priority.

2. Don’t Focus on Growth - This sounds like bad advice for any small business owner, but the truth is that many businesses are going to continue along the same growth pattern as before and find themselves beat to hell by the time they emerge from this crisis. This is the time when you need to hunker down and just wait out the storm. This will benefit you not only in the short term by ensuring you don’t go bankrupt, but will also put you in the perfect position to make strategic growth decisions after the crisis is over. For example, by keeping you expenses down and your cash account padded, you will be in a position to spend quickly right out of the gate - purchasing your competition or just beating them to key customers - because you have saved for what I like to call the “sunny” day.

3. Focus on Value - Since you’ll be cutting back on expenses, spend time on the things that don’t cost that much money but add value to your business. Instead of spending $10k replacing an old machine, spend $100 in phone charges to re-connect with your customers, or improve customer service. Invent new ways to add value to current products without spending a ton of money. That investment of time and energy will pay for itself 10x.

4. Collect - One of the things you can do to add value to your business and increase cash flow is by collecting on your accounts receivable. If there was ever a time to go after those delinquent customers… now is the time. If you don’t have an invoicing system in place there are tons of free and fee-based services out there - from PayPal to FreshBooks. You can even use Excel as long as you are actively trying to collect that cash.

5. Don’t Give in to Hoarding - During this time when “cash is king” you should avoid buying in bulk or otherwise stockpiling supplies or inventories. Although the parable of the ant and grasshopper might come to mind, now is not the time to be hoarding. That extra spending drives expenses up, depletes your cash reserve, and at the end of the day might be worth nothing. What good is a pallet of copy paper at a discount if you don’t have a business capable of using it. You will always be able to buy these items later even if you pass up a small discount now. That “savings” could prove disastrous to your cash flows.

6. Leverage Technology - There are tons of websites, web services, and other technologies that can help save you money. For example, trade in your $600 flight and $400 hotel for that sales trip to Chicago for an online meeting service instead. These days you can share a presentation, hold a conference call, or even converse via webcam - with nothing but a DSL modem and $50 a month for the services. You can also step up efforts to find better prices on products or services you normally use - by simply performing a simple Google search. Buying you your widgets from ABC Company for the past 5 years shouldn’t prevent you from searching for XYZ Corp who is offering the same widgets at 50% off.

Advertisement: Payday Loans Online fast, friendly, convenient.

This is in stark contrast to previous years. In April 2001, 41% of credit-card owners said they usually left a credit-card balance at the end of the month, or made the minimum monthly payment or less. This percentage increased to a high of 45% in April 2004 before declining to 40% in 2006 and to 38% in 2008.

Gallup’s survey of credit-card use also shows that American credit-card holders have about four credit cards on average. Many Americans also maintain fairly high credit-card balances. Overall, credit-card holders reported an average balance of $3,848 in April 2008 (though the median, or middle value, is just $200). More importantly, 30% say they have a balance of more than $2,000, with 19% reporting a balance of more than $5,000 and 9% more than $10,000.

So how does your credit card usage compare? Do you pay it off in full each month? (Hint: you should) Or are you paying only enough to cover interest? (Hint: you shouldn’t)

Advertisement: Payday Loans Online fast, friendly, convenient.

The short answer is: just like the rest of us.

Sometimes there are extenuating circumstances like a rash of lawsuits or a natural disaster that drains the city coffers dry; however, most cities go bankrupt because of poor management and even worse budgeting.

Which should, actually, give you hope. After all, if a city staff of 15 accountants can’t balance the budget, it can’t be that easy can it? Granted, balancing a city budget is a little harder than your family of four, but it is based on the same principles. Unfortunately, however, cities get caught up in union negotiations and local politics which prevents them from making the same decisions you and I might make. For example, politicians aren’t too popular when they need to raise taxes to increase revenues. As a result, many politicians hesitate to raise taxes while at the same time keeping city service levels the same. And, just like a personal budget, you can’t survive very long when your income doesn’t cover your expenses.

Federal Bankruptcy Help:
To help cities in dire straits the US Government enacted the first municipal bankruptcy legislation 1934 during the Great Depression. Although similar to other bankruptcy chapters in some respects, chapter 9 is significantly different in that there is no provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors. Could you imagine the city being forced to liquidate city roads, sewers, and parks? The town Burger King could end up owning the park by your house!

Instead, chapter 9 is generally limited to approving the city’s bankruptcy petition, confirming a plan of debt adjustment, and ensuring implementation of the plan. But most of the time, cities use the courts to simplify debt repayment and to eliminate the need for multiple forums to decide issues.

In the more than 60 years since Congress established Chapter 9 bankruptcy legislation, there have been fewer than 500 municipal bankruptcy petitions filed. Although chapter 9 cases are rare, a filing by a large municipality can— like the 1994 filing by Orange County, California—involve many millions of dollars in municipal debt.

In the case of Vallejo, its the largest city in California to declare bankruptcy, and the only one to do so because of long-term economic problems. City officials have said that the city has been hit hard by the weak housing market and rising public employee salaries and benefits. In fact, 80% of the city’s budget is set aside to pay for police and firefighter protection.

What Happens After Bankruptcy?
Almost nothing as far as you and I are concerned. Water keeps flowing, garbage is collected, and the roads and parks are maintained. Generally, the city’s larger development projects get put on hold, and long-term projects are scrapped for the time being. The government can be dissolved and taxes can be raised to cover the shortage. But generally bankruptcy gives the city power to impose terms and conditions for salaries and benefits unilaterally. The city obtains the upper hand to force terms with respect to its collective bargaining agreements including police and firefighter unions. So why it’s probably safe to assume that day-to-day life will remain the same, you can also count on your city taking a huge step backwards in terms of financial prosperity. That city library that was planned for next year - you won’t see that for at least 7 years. Relationships with city workers will have to be mended, and the city government will have to regain the trust of the citizens, or find people who are more capable of running the city,

You’ll hear me, and every other personal finance blogger out there, tell you what to do to get out of debt. Cut back spending… get a second job… make a realistic budget… and on and on…

But have you ever stopped to think about why you CAN’T get out of debt? Seriously, take a second today and ask yourself why you can’t seem to do it.

I think sometimes we get so caught up in trying to do what we’re supposed to in order to get out of debt, that we fail to actually identify what makes us personally get there in the first place and why we can’t get out. After all, the reason I can’t get out of debt might be totally different than yours. You may be laughing every time I talk about budgeting because you’ve already made this amazing budget that would impress the uber-excel nerds and are doing a great job at following it… but you may be struggling in other areas.

But today’s press announcements and market reactions brings up a few interesting observations about investing:

1. Sometimes market activity has nothing to do with performance. Countrywide could be just fine, but at the very hint of bankruptcy, investors take their money and run. It’s a knee-jerk reaction that has more to do with emotions and fear than actual performance. This is one aspect of investing that you just can’t plan for.

2. Sometimes investors know more than the company. I throw this one out there with a cautionary warning. At times, a few savvy investors can spot the warning signs early enough to bail right before a stock tumbles. The key is to watch those investors Perhaps Countrywide isn’t going to file for bankruptcy, but chances are that the investors believe the story is not only possible, but plausible.

3. Sometimes companies lie. I know, it’s hard to believe but Countrywide could be lying through their teeth. I’m not saying they are, but they could be. This is when you break out the spreadsheets and financial statements, pour over the figures, and crunch some numbers in the form of ratio analysis. You need to try and determine on your own if Countrywide could file for bankruptcy soon. What is the debt to equity ratio? Does it have enough cash on hand to pay interest this year? These are the types of questions you should be asking yourself before you jump ship yourself. Who knows, if you’ve done your homework Countrywide could be the perfect stock to BUY right now!

As you know, I am adamantly opposed to any Company who markets products (especially financial products) that harm or take advantage of consumers who don’t know any better. For example, Pay Day Loan brothels (yes, I said brothels) take advantage of people in need of short-term loans by charging interest rates as high as 1,600% (no, that’s not a typo).

Another product that has become increasingly popular is the Tax Refund Anticipation Loan. This loan, offered by companies such as H&R Block and Jackson Hewitt, allows you to walk out with cash in the amount of your anticipated tax return - for a fee. In fact, you don’t even have to complete your return! You can walk in, hand over your last pay stub, and walk out with a loan in the amount of your estimated tax return.

Well, the IRS has finally stepped in to put a stop to this ridiculous business practice. Citing tax fraud as its reason, the IRS has proposed restrictions on tax data used in refund anticipation loans. Basically, the IRS is stating that the tax information you hand over as part of your loan application is not allowed to be used for the purposes of getting a loan. And apparently from the reports coming out today, it seems that many people (and companies) didn’t exactly tell the whole truth on their applications, leaving banks with a huge difference between the amount loaned, and the amount of refund received from the IRS.

I for one am glad this revenue stream has dried up for tax preparers who have used this as a way to create more business. Your tax preparer should not be advertising loans using money you have not yet received. Your bank and tax preparer should be independent so that you can get fair and unbiased information from both. If the tax preparers are too focused on getting you a large refund only so that you can get a bigger loan - and they can get a bigger fee - then fraud is bound to occur.

But what I want to know is how your Christmas spending compares to last year? Please take a minute to answer the poll below. (RSS readers please click the title to this post to view)

Oh, and Merry Christmas, Happy Hanukkah, and Happy Kwanzaa to all the BeancounterBlog readers!

This woman, Kathleen Casey-Kirschling, filed for early retirement Monday, becoming the first baby boomer to start collecting Social Security. Born one second after midnight in January 1946, the retired teacher leads the way for as many as 80 million individuals who will qualify for the retirement payout. And thus begins the end of social security…

What? Do you think I’m being a little too over-dramatic? Well, David Walker agrees with me! He’s the comptroller general of the Government Accountability Office, Congress’ legislative arm, who warned the Social Security system will soon have more recipients coming than it can afford to pay out.

“We face a tsunami of spending due primarily to the retirement of the baby boom generation and rising health care costs,” Walker said. “So what’s happened is we’ve gone from 16 workers paying into Social Security for every person drawing benefits in 1950 to 3.3 to one today, and we’re going down to two to one by the time the boomers retire in big numbers and that’s about where it will stay over the long run.”

Democratic Representative Tim Penny is also worried.

“We’re going to have tens of thousands of baby boomers retiring every week over the next decade or so and that means that by time we get to 2017, just 10 years away, we will no longer be collecting enough payroll taxes to pay Social Security benefits.”

Under current law, Social Security won’t have enough money to pay promised benefits in 2041, but there is another crunch much, much sooner, the result of the the federal government relying on Social Security to pay for its annual spending.

When Social Security gets payroll taxes it pays out most of the money in benefits. The rest is supposed to go into a trust fund. Instead the government, in it’s infinite wisdom, has been spending the money on other government programs, and putting IOUs into the trust. When Social Security needs the money it’ll turn to the government waiting for the payback. But the government won’t likely have any. It’s estimated that over the next 75 years between Social Security, Medicaid and other entitlements, the federal government will be in a $50 trillion hole.

So by the time I hit retirement age… I’ll be pulling in a nice $3/month from the government, after paying thousands and thousands of dollars into it during my lifetime.

That’s why I’m a little worried…

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so when that young person turns 18, if they have finished high school, they will be able to access it to go to college,” Clinton said.

Clinton failed to offer any details on how the program would be funded, but the idea of a “baby bond” prompted me to create the following poll.

Would you support a $5,000 baby bond?