This is a sharply pertinent question given the current and ongoing credit crunch, combined with the endlessly falling dollar and the draining of confidence out of financial markets worldwide.

Comet Holmes — predicting financial disaster?

There are two aspects to this :

1. How bad will it get?
2. How well is your business prepared?

The answer to #1 is getting blacker by the day. I don’t think I have ever read such a pessimistic press as over recent days. For example, take that excellent financial journalist Ambrose Evans-Pritchard in Britain’s Daily Telegraph today :

The root cause of this staggering debacle lies in errors made long ago by the Federal Reserve and fellow sinners. It was they who inflated the credit bubble by holding interest rates too low for too long. It was they who lulled their nations into suicidal levels of debt.

The strategic failure of a whole generation of economists, bankers, and policy-makers has been so enormous that it may now take a strong draught of socialism to save the Western democracies. We start — but may not end — with the nationalization of Northern Rock.

And that from a right-of-centre newspaper.

Clearly, we’re in for the roughest of rides over the next two years, and possibly longer. Although interest rates are tumbling and will continue to do so, even in the eurozone, the drought of liquidity around the world as banks horde cash, Scrooge-like, will permit little flexibility.

Which brings us to how well prepared your business is. The simplest, but tough, solution would be to dump as much debt as possible. This is no time to be in hock to anyone, least of all a bank. The slightest ripple in your payment schedule could cause foreclosure, especially for running overdraft facilities.

The second aspect is how firm or soggy are your markets? Will your customers be able to pay you for your goods and services? Is your marketplace one that all but disappears in a downturn, e.g., machine tools manufacture?

Can you find alternative customers, or revamp your products towards another sector of the market? In short, are you flexible enough to ride out the storm, even if it’s prolonged, as it may well be?

Businesses do survive the harshest of slumps with careful handling. However, managers will need to look long term, trim the fat off the infrastructure, find cheaper ways of doing things, and above all, stay afloat.

Whatever you do, survival measures should be put in place immediately. The banks have been hording their cash reserves for months. They know what’s coming — even if they didn’t spot it in time.

When searching for something to build a business around, don’t forget your early training.

Maybe you trained in a trade or service before abandoning it for something else. Either you were bored by your employment or you were offered an appealing way out.

However, when it comes to starting your own business you need to be master of your craft. What seems exciting in the mind’s eye, may not be at all feasible when you and you alone have to make it work and earn revenues.

Here’s a good example of that. Over at Syntagma, there’s a piece by John Evans on how Google’s attempts to knock competitor’s advertising off many websites, set his mind pointing back to early training.

I’ve been writing about my interest in the economics of the retail sector for a year without very much happening. Now the long-gestated project is beginning to come to life thanks to our contacts with a number of specialist retail analysts …

The idea goes back to my initial training in information science at the Central Office of Information in London.

Read Syntagma moves into specialist information products here.

Sir Ronald Cohen is reported to be a close friend of new British Prime Minister, Gordon Brown, and a donor to the Labour party.

Cohen is the founder of a private equity company, Apax Partners, and has just written an interesting book covering his business activities and philosophy : The Second Bounce Of The Ball: Turning Risk Into Opportunity.

Gems of wisdom from the book include,

“Start young, think big and stick with it.”

“Seek out uncertainties. Risk is where the money is.”

So, if you like excitement mixed in with your business dealings, pre-order the book now.

A New Series on Business Startups — Part 11

Many startups plunge into the marketplace on a wing and a prayer. The young, inexperienced hopefuls have great expectations, but little knowledge of the complexities of the business they are getting in to.

The problem with this approach is that, except in rare instances, the new entrepreneurs will be forced into mimicking what’s already out there, including their main competitors. They will be competing directly with hard-bitten professionals and mature operations. They don’t stand a chance.

One way round this head-to-head gambit is to set up the enterprise initially as a hobby project, rather than a registered business.

The advantages of this alternative approach are many:

* You can win your spurs without too much financial drain or loss of face.
* You can gain expertise by copying the market leaders with little comeback.
* You can mature in the job and branch out from your competitors.
* You can gain respect in the market before making big investments.

This path is especially easy on the internet because entry costs are so small. Syntagma Media was started in this way, first as a tentative hobbyish project to test the waters, then as a semi-commercial enterprise with all profits reinvested for growth. Finally, as a registered business earning good returns for its owner.

Where entry costs are low, it’s always best to reach the comfort zone before fully committing yourself to a real business with all its overheads and legal headaches.

After all, you may not like it once you’ve tried it out for yourself.