Economic downturns are a lot like storms and we are in the middle of a prolonged financial storm right now. While many economists were reluctant to use the “R-word” for a while, we now know that we have been in a recession since December 2007.

This isn’t news for most small business owners, who certainly have felt recessionary pressures for the past several quarters. However, you can weather any storm if you take the right actions once it hits and the same holds true for surviving an economic slump. As you try to keep your head above water while the storm rages around you, following these steps can significantly improve your chances of being in business when the sun finally comes out.

• Assess your business model. This may sound counter-intuitive, but an economic storm is a good time to assess your business model. Why? It has been said that when the tide goes out, we find out who has been swimming naked. In a period of strong economic growth, even mediocre businesses can thrive. When things get tough as they are now, however, those with a weak business model struggle and often don’t survive.

First, ask yourself some hard questions, such as, “Is my business location optimal?” “Am I still meeting the needs of my customers?” “Do I have the right product mix?” “Do my price points make sense relative to the market?” “Do I have the right people in place to help me survive now and thrive later?” “Is my cost structure too high?” “Am I doing better or worse than my competitors?” “Can I make enough money from this business to justify the time and effort I devote to it?” “What should I be doing that I am not doing?” “What should I stop doing that I am doing now?” and “Should I consider other sources of revenue generation, such as online sales?”

Second, you must be willing to make some difficult decisions if your business model is not on the right long-term course. If you are willing to ask the tough questions and act accordingly to change course, it might be the difference between going under and surviving.

• Seek professional input. When times get tough, it is sometimes difficult for the rental business owner to unilaterally decide on the right track for survival. This is a good time for you to seek outside counsel from trusted advisors. Start with your certified public accountant (CPA). Your CPA should be familiar with the financial strengths and weaknesses of your business and can provide valuable input to improve sales, increase margins and cut costs.

A second good source for counsel is your attorney. In addition to legal knowledge and advice, many attorneys have experience in advising clients on business management issues. If you are receiving frequent calls from creditors or find that you are falling behind in keeping your taxes current, your attorney will ensure that you understand where you stand legally.

Another source of input can come from your local business contacts. You should know other small business owners in the community who would be willing to provide advice on dealing with the financial problems you face.

If you have met other out-of-town rental business owners at The Rental Show, they might prove invaluable in providing input.

Another well-kept secret in the business world is the Service Corps of Retired Executives (SCORE). A resource partner with the U.S. Small Business Administration, SCORE describes itself as “a nonprofit association dedicated to educating entrepreneurs and the formation, growth and success of small business nationwide.” With 389 chapters and 10,500 volunteers throughout the country, SCORE provides free and confidential advice for small business owners by pairing them with retired executives in the same or similar industry. Consider going to SCORE’s Web site, www.score.org, and seeking help either in person, online or by phone.

The American Rental Association (ARA) also helps facilitate the formation of Business Analysis Groups for ARA members. A group consists of owners or partners of noncompeting rental stores who have a similar size, volume and inventory mix. Individuals in the group meet and communicate on a regular basis regarding various management and business practices.

• Meet with your banker. Another trusted advisor who can help you weather the storm is your banker. It may be intimidating to go to your banker and share bad news, but it is important to be proactive when the storm hits. Bankers don’t like surprises, so the earlier you seek the counsel of your banker, the better. If you have borrowed money, the bank likely has a first lien on all of your company’s assets and can shut you down by foreclosing, so, it is much more advantageous to get your banker on your side early rather than risk an adversarial relationship.

Your bank often will be willing to help by extending loan terms. For instance, for a $50,000 loan at 9 percent with a two-year term, the monthly payment would be $2,285. By extending that same loan to a three-year payback, the monthly obligation decreases to $1,590. This translates to a monthly savings of $695 and annual cash flow enhancement of $8,340. Banks also will sometimes allow interest-only payments for six months or a year during financial crises, which can further enhance cash flow. You can then resume monthly payments of principal and interest once the storm passes.

• Cut your costs. Small business owners sometimes are reluctant to reduce expenses during an economic downturn. This is often because the payroll makes up the largest line item component of expenses and cutting payroll means cutting the hours of your employees or even letting some of them go. This can be difficult if your employees have a long tenure in your business or if they are family members. However, failure to reduce your payroll when the storm hits might lead to the complete failure of your small equipment rental business and no jobs for anyone.

A good rule of thumb is to reduce your payroll by at least the same level as your revenue drops. For example, if your annual revenue was $500,000 last year when the economy was stronger, and it drops 10 percent to $450,000, then you should seek to decrease your payroll by at least 10 percent. This may not mean termination for any employees. You also can achieve payroll reduction by dropping some people to part-time, eliminating overtime and cutting your own salary. Of course, your payroll is not the only operating expense for your business and there are other cost-cutting measures to take (see story on page 16).

• Manage your inventory. While you certainly have to keep inventory in your store to generate rentals and sales, an economic storm is a good time to evaluate your strategy. While it may seem prudent to carry a little bit of everything, this can prove very detrimental to your cash flow when every dollar counts. Now is the time to get rid of slow moving and low-margin rental inventory. Try staying at your business location for a few evenings after closing one week, take inventory of the dead stuff and then get rid of it — sell it, auction it or whatever it takes. Put the extra money into your niche items that turn much faster or put it in the bank.

• Use your trade credit. A good rapport with trade creditors is critical during a financial downturn. Stay in close contact with your trade creditors and let them know when they will be paid, but don’t disclose too much so as to avoid alarming them and running the risk of being put on a cash-on-delivery basis.

While you can often negotiate with your trade creditors, the Internal Revenue Service (IRS) and other municipalities offer little flexibility. You must keep payroll taxes current at all costs. Not only can the IRS shut you down over delinquent withholdings for federal, state, FICA and Medicare taxes due, they also can pursue criminal charges in certain circumstances. You also must keep state sales taxes and any local taxes current. If you have a reporting period approaching and don’t have the funds available, contact your attorney to discuss your options.

• Obtain outside capital. Don’t assume that there are no options for outside capital during the current economic downturn. If you have a good business model and a strong track record of performance during a growing economy, there are many investors who could be willing to provide much needed capital to help you get through this slump. The first place you should look is your own personal resources. If you have accumulated cash and/or investments during the past few years, consider investing it in your business until the storm passes. There is no better place to invest your capital than the business from which you derive your livelihood. Likewise, if you have equity available in your residence, consider a home equity line to generate capital for your business.

If you are personally tapped out, there are other outside sources to consider, including traditional institutional venture capital (VC) companies. Sometimes referred to as a private equity group, a traditional VC firm raises money from private sources such as insurance companies, hedge funds, pension funds, endowments, banks and individuals. The minimum investment level generally is at least $250,000 for a traditional VC firm and they expect an annualized return on investment of at least 20 percent over a three- to seven-year period. However, traditional VC money is hard to come by during an economic slump.

Small business investment corporations (SBICs) are public venture capital initiatives sponsored by the federal government, which uses a combination of private funds and federal government dollars to provide three important needs for eligible small businesses — equity capital, long-term loans up to 20 years and management assistance. SBICs are federally licensed and they are scattered throughout the country. SBICs are a more viable option than traditional VC firms in an economic downturn and they will consider smaller investments as low as $50,000 in some cases and may offer more flexible terms.

Another option is an “angel” investor. “Angel” investors are individual capital providers for small businesses. They typically are entrepreneurs who like to help small business owners to achieve high growth in exchange for a share of the profits from the business. Angels might invest anywhere from $50,000 to $1 million or more in a business. The typical profile of an angel is a family member, friend or small business owner in the community.

If you aren’t sure where to find potential sources of capital like those listed above, ask your CPA or banker to point you in the right direction.