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Small Businesses coping to stay alive in a downturned economy

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There is a lot of buzz on the internet that a number of small-business owners have stopped paying themselves as they struggle to keep their companies afloat.

While it's impossible to know just how many owners are affected, the trend shows that 30% of 727 small-business owners and managers surveyed by American Express Co.'s small-business services division said they were no longer taking a salary. That's a troubling sign for small businesses, which have created a significant number of new U.S. jobs in recent years.

After the terrorist attacks in 2001, I had to I had to stop paying myself when the economy took a downturn since my business’ customer base dropped by 85%. Unfortunately, after not drawing a salary for 6 months, I had to give up my business and search for employment. I reached the point of no return and didn’t want to file bankruptcy, so I worked with my creditors, made payment plans, let the business go, and found a job.

During past downturns, business owners might have turned to a home-equity line of credit, a personal loan or credit cards to shore up finances. But this time, real-estate values have plummeted, leaving many with less home equity to tap, and by today’s standards, bank credit is virtually nonexistent.

It's not uncommon for owners to give up salaries from time to time to give their companies a temporary lifeline, but business advisers and owners say the prevalence of salary cuts now is unusual even for a recession. Owners are paying the rent or mortgage first, the utilities, their vendors, and whatever is left over becomes salary.

All the small-business books say, 'Pay yourself first.' But by not paying myself, it allowed me to keep a couple of employees around. After all, it wasn’t their fault that I had bet the profits on growth. In just a few months the staff was trimmed from 60 to 10. We were all in it together, but it wasn’t enough to keep the business going.

Eventually, the economy will improve. So, for now, small business owners will just have to hunker down and weather the storm – as there does seem to be some optimism in the industry.

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