5 Ways To Survive A Downturn

An economic slowdown can be particularly unnerving for small business owners, who don't have the resources of large firms to fall back on in lean times. But you don't even have to own a company to have reason to care: More than a third of private-sector workers are at firms with fewer than 100 employees, and of those, more than half work at companies with fewer than 20, according to the U.S. Small Business Administration.

There is some good news. U.S. companies now sell more overseas than ever before, which means they are less dependent on the American consumer. A study of large firms by Standard & Poor's found that 44% of sales came from foreign markets in 2006, up from 32% just five years before. With the plunging costs of transportation and communication, it's increasingly easy for small companies to tap those markets, too—and now might be a good time. While banks have beefed up lending standards for companies and increased the rate spreads on loans, the changes are so far effecting larger businesses more than their smaller counterparts, according to data from the Federal Reserve Board's October survey of senior loan officers.

That doesn't mean there's not trepidation in the ranks of America's self-employed. "I am anticipating there will be a slowdown, whether or not there's going to be a recession," says Bill Nicholas, a food broker in Sacramento, who is also worried about the drop in value of his two houses. "We're going to tighten our belts a little bit."

Ways to do that include reducing inventories, accelerating payments from customers, and delaying payments to suppliers, all while making sure to keep cash on hand—most bankruptcies are caused by firms running out of cash, not because of a hit to earnings. Companies should also take a good hard look at inefficiencies and even restructure if necessary, says Gary Neilson, senior vice president at the consulting firm Booz Allen Hamilton. "Oftentimes, a recession gives you a good excuse for doing what you need to do anyway," he says. Which means at the end of the day, recession can turn out to be useful for firms well-positioned to withstand it. "Recession weeds out weak companies very quickly," says Lakshman Achuthan, managing director of the Economic Cycle Research Institute. "That could be a great opportunity for competitors."

—With reporting by Bianca Nery/South San Francisco