People go into business to make money. Up to now, capitalism, private ownership and the free market economy was applauded and encouraged in the United States. Now that a recession has hit the United States, capitalism is being blamed. It's not an argument I want to get into. But I maintain that capital and lack thereof, is a real world problem and concern than capitalism.

Less business

So you're a business doing business in the B2B space, which means you're doing business with other businesses. For those who are winning and retaining contracts and business, congratulations. Businesses are not spending. Fewer requests for proposals on the street. Shorter contracts. Fewer contracts. Bottom line, a leaner bottom line for your business.

Fewer loans

Our economic recession in the United States was precipitated by dramatic declines and defaults in the financial industry. Banks are going out of business. Those still in business are tightening their criteria for business loans. Businesses still need a way to finance their operations. Small business owners especially are prone to having business and personal credit scores that are not so good. Some banks are requiring credit scores of 750 to consider a loan, even ones guaranteed by the federal government via the U.S. Small Business Administration (SBA). So if you're a small business turning to a traditional banking / lending institution for money in the form of a line of credit or a loan, you're probably finding the situation challenging.

Price squeeze

In today's economy, the focus needs to be on preserving capital. It's a victory if you can manage to sustain your revenue levels at a time when many are seeing a decline. There's a video about the squeeze that often takes place between you, the small business and your customer, the big business. The big business may be tempted to push for price discounts, which reduces your profits and cash flow. Wal-Mart is positioned as the low price leader. They are notorious for their vendor strong arm tactics. Check out the CIO magazine video at http://advice.cio.com/thomas_wailgum/the_vendor_client_relationship_captured_on_video_1

Some of your customers may get a bright ideas about saving money by depressing prices. This could have disastrous side effects. An example I'm familiar with is the prior State of Georgia staffing arrangement. They had something like 150 approved vendors - That's an administrative nightmare to start with. Then from the vendor perspective, when there was a need, each approved supplier could only submit 2 people. This means there tended to be 300 candidates for any one opening. So the staffing firms had to bid down on price. The suppliers were dis-incented to submit people because of all the competition. It was more lucrative to spend their time and attention elsewhere.

Low price usually means low quality in the placement world. So for the state, that's what they got. In general squeezing suppliers for lower prices results in lower quality and few options and services. Although CIO Magazine deals with information technology issues, it should not be assumed that the price squeeze only applies to IT vendor client relations. Most businesses are hurting, so they are willing to pass on the pain to whoever they can.

Cash Flow Squeeze

Your business needs cash flow to survive and grow. So how to get the needed cash flow and working capital? You may turn to your customer to work out terms. But there's another squeeze going on. The big companies are also experiencing declines in revenue. So they are motivated to preserve cash and cash flow. So what's a cash preservation strategy? Delay vendor payments. The poor small business is doubly squeezed. Difficulty getting money from their bank and difficulty getting money from their big company customer.



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