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Benefit from Boom and Bust

How to profit in a fluctuating economy.

As I write, the economy is strong. Yet, as we all know, every boom is followed by a bust. Every up cycle is followed by a down cycle. So when things are good, that's the time to prepare for when things will be bad.

Over the years, I've seen entrepreneurs make three mistakes during boom-and-bust cycles. The first mistake is made when times are good: Entrepreneurs begin to spend. With increased confidence, they expand their businesses, hire more people, buy bigger houses, lease new cars or have more kids.

The second mistake occurs when the economy shifts and business slows down. Suddenly, confidence is shaken, and entrepreneurs begin to save. Cutting back only causes the business to fall faster.

One of the best secrets my rich dad taught me was to save when times are good, and spend when times are bad. In other words, do the exact opposite of what everyone else is doing.

When times are good, save money by paying off bills and improving income-to-expense and asset-to-liability ratios. Make the business financially stronger. Be careful about taking on more debt, especially ego debt, like bigger offices.

When times are bad, don't cut back on sales-generating activities like advertising and promotion. Instead, increase your sales, promotion and marketing budgets. Hire more salespeople and increase sales training. An aggressive outbound sales campaign reverses your fears--it gets energy flowing out and then flowing back to you in the form of sales.

When the economy recovers, a business that has saved money often emerges smaller and weaker. A business that has spent money emerges bigger and stronger, able to expand rapidly.

The third mistake is failing to understand the sales and promotion cycle. My rich dad taught me that it is a six-week cycle, meaning if I do some promotion today, my sales will increase in six weeks. One reason entrepreneurs fail: They're impatient. They do some promotion, but when nothing happens immediately, they think advertising is a waste of money.

Never stop promoting, advertising and selling, whether business is good or bad.

Robert Kiyosaki, author of the Rich Dad series of books, is an investor, entrepreneur and educator whose perspectives have changed the way people think about money and investing.

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This article was originally published in the July 2006 print edition of Entrepreneur with the headline: Benefit from Boom and Bust.

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