When your business struggles, it's a personal struggle, too -- you've got a lot invested, both financially and emotionally, in your business. But you need to rely on objective management tools to help you decide whether it makes the most sense to continue your business or hibernate, sell, or close it instead.

Can You Save Your Business?

Chances are that, like most business people, you are an optimist -- pessimists usually work for someone else. It follows that when tough times wallop your business, you are likely to be overly sanguine about the future. Even if your business is melting down in front of your eyes, you might too easily conclude that sales will pick up next week, next month, or next spring.

Unfortunately, when economic times are bad, the opposite is more likely to be true. Just as in boom times your happiest projections may consistently be surpassed, chances are that when many things are going wrong, more will. To make changes and cutbacks fast enough to bring income in line with expenses, you'll need to take off your rose-tinted glasses -- and step on them.

First, take a look at the fundamental assumptions that underlie your business. What human behaviors are you counting on to make your business succeed? For example:

• When dogs get sick, owners take them to a vet.
• When cars are filthy, people wash them.
• When people get hungry at the beach, they buy food.

When a recession hits, the assumptions behind many successful small businesses become invalid or lose much of their power. For example, take a store that sells upscale children's clothing to vacationing grandparents who want to take cute outfits home to their grandkids. If the number of older tourists falls by half, and many who still come are so traumatized by their shrinking retirement plans that they are pinching pennies, the store may quickly lose most of its customers. With sales down 50% and no reasonable prospect of returning to profitability in the next six months, the best bet might be to have a big sale and close down.

Once you honestly fact up to the fact that boom times may not return for years, you need to either come up with an exit strategy (selling or closing down, either temporarily or permanently) or quickly develop and implement a realistic plan to turn your business into a survivor. Almost always this means identifying your business's profitable core and shucking off all or most activities that are not part of it.

For example, say A&T, a publisher of regional guidebooks with a dozen well-established, profitable titles and many others that barely break even, is hit hard when a recession cuts into the area's tourist business. A&T will need to quickly redesign its business plan around core titles that still make money. It won't be easy -- it will mean laying off valued employees, canceling speculative new titles, and pruning the backlist. Then, A&T will need to come up with a new publishing plan to convince enough of its owners and advisers that it's worth the energy it will take to bring it back to solid success.

Three Steps to Help You Move Forward

Here's a three-step approach that relies on hard data, your own experience, and advice from objective outsiders to help you make a solid, realistic plan for getting your business back in the black.

Step 1. Prepare a current profit-and-loss statement and cash flow analysis. You can't do the planning or take the action that will be needed to turn around a recession-battered business unless you fully understand your business's key numbers. It's like trying to land a plane in dense fog without instruments -- you'll encounter the ground eventually, but it won't be pleasant. For detailed explanations, templates, and step-by-step help, see How to Write a Business Plan, by Mike McKeever (Nolo).

Step 2. Create a business survival plan. Your plan should convincingly explain how your business will be able to cut expenses, increase sales, maintain or reestablish an adequate profit margin, and manage (or attract more) cash. Set a deadline: In X months, you'll be both profitable and have enough money in the kitty to bring past-due bills current.

Step 3. Establish an advisory board. Spend some time gathering a small group of knowledgeable small business advisers. Choose people with enough entrepreneurial experience to understand your profit-and-loss statement and to review and challenge your survival plan. They can be an invaluable source of encouragement, ideas, contacts, and objective advice.

For more information on your options, see Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down and Move On, by Ralph Warner and Bethany K. Laurence (Nolo).