When it comes to small businesses, cash flow is king. Without cash, rents don't get paid, payrolls can't be met, lights get shut off sometimes for good.

So it's no surprise that the shutdown of the nation's travel system for nearly a week dealt a major shock to many small companies. Some of the hardest-hit travel agents, air-freight companies, hotels, restaurants practically shut down for several days.

Within hours of the attacks, Joe McClure was at work on a plan to save his company. With more than 160 employees and annual revenues topping $100 million, Montrose Travel is one of the largest area travel agencies. In that first week, business fell by 80 percent.

McClure, the firm's president and a co-owner with his wife and sister, set out his goal: "Batten down the hatches and preserve cash, to last out a slump to the end of the year."

'Standing amid the rubble'

Ten days later, on the afternoon of Friday, Sept. 21, McClure was announcing a plan at a company-wide meeting. That day, he had given pink slips to 16 workers. The remaining employees received temporary pay cuts of 10 percent. The three owners forfeited all of their pay and lowered the rents the business pays on family-owned office buildings. Long-distance rates were renegotiated and advertising was cut by 20 percent.

"I laid out what our strategic plan was for the next 90 days, exactly what was expected of them in terms of daily production," McClure said. "We will be one of the travel companies standing amid the rubble when January rolls around, and there will be a lot of rubble."

In all, McClure cut $100,000 in expenses from a monthly operating budget of $750,000. The firm's cash cushion of three months' typical operating expenses will last until late March if business remains depressed by 50 percent. "If it's worse than that, then we're all in serious trouble," McClure said.

No one could have anticipated the events of Sept. 11, but unexpected sales drop-offs aren't uncommon to small businesses. In fact, they're the third-most frequent cause of cash-flow problems, after slow collections and seasonality, according to the National Federation of Independent Businesses.

The best defense is to prepare for the unexpected. "Lots of times companies will go to banks and get working capital lines" that can be tapped in times of need, said Ron Leibow, a partner at Kaye Scholer LLP, a bankruptcy-oriented law firm in Century City. Other companies don't ever borrow, he said, and they will turn to other methods, such as slowing their payments to vendors, reducing inventories or offering discounts to get business in the door.


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