The jury is still out on whether or not we have the first big recession of the 21st century.

It is safe to say that many businesses have been impacted by the 2008 economic downturn. In a recent economic impact survey conducted in July by the Napa Valley College Small Business Development Center nearly 70 percent of our local businesses are showing a decrease in sales for 2008 compared to 2007.

Those sectors that have been initially impacted the most include the business directly related to the housing market. Mortgage and real estate business owners are feeling the pinch, followed by financial institutions because of the credit crunch.

Other impacted sectors include contractors and home improvement businesses. Retail and service-based businesses that rely on local commerce have also reported declining sales. Locals are spending less on personal services such as facials and massages and opting to fill up their gas tank or purchase their groceries. When consumers feel the pinch, our local businesses feel it too.

I’m not a blind-sided optimistic, but for our small businesses, an economic downturn can be an opportunity to re-evaluate your business model and develop strategies to maximize profits, maintain cash flow and retain and diversify your client base.

The first step to maximize profits is to really understand your profit and loss statement and get a handle on your operating expenses. In a growing economy we often have the tendency to focus on sales. More sales are better; this strategy is referred to as “top-line” marketing. In a tighter economy, the focus should shift to increased gross profit margins.

Yet increased gross profits become awash if we fail to minimize or reduce operating expenses. I like to refer to this as “bottom-line” marketing. The combination of keeping our eye on increased profits and reducing operating expenses will give us a positive bottom-line.

At the same time entrepreneurs would be wise to keep their eye on cash flow. Cash flow is the oil that lubes the engine of your business.

Three ways to improve your cash flow include establishing and enforcing a business credit policy, negotiating with vendors and creditors for both account receivables and account payables, reviewing inventory and inventory turn-over.

The third strategy is to continue to focus on your customers and providing exceptional customer service. A tight economy gives your clientele the opportunity to be picky about the product service they are experiencing.

This is the time when retail and service businesses can stand out by providing outstanding service. By coaching employees to provide stellar service, a business can keep valuable customers and ride out the downturn.

The final strategy that consumers and local business owners could consider is to buy local.

 Buying locally produced goods and services contributes three times the amount of funds into our economy. We are all impacted by an economic downturn and this is one small way we can bolster our local community.

For more strategies on how your business can thrive during an economic downturn, I invite you to call the NVC SBDC at 253-3210.