The "R" word strikes fear in the hearts of everyone, but it's particularly cruel for entrepreneurs who are already working against the odds--narrow margins, big-business competition and no more than 24 hours in a day.

Economists may debate whether we're in a recession, but key financial indicators--the housing market, consumer confidence and the stock market--aren't looking so good. The government has loaned our nation's banks $260 billion to survive the credit crunch. It's clear that we're facing tough times.

Andrew Dubinsky of Encomia is the canary in the coal mine. His mortgage software company survived the 2001 recession and, despite targeting an industry that saw trouble before people cried the "R" word, he is projecting his revenue to be five times more this year than in 2007. The moment he saw the housing industry spiraling, Dubinsky sat down with customers and mapped out individual strategies.

"Some thought they could muscle it out; others were simply frozen," Dubinsky says. "[We] looked at how we could tailor our product to help them weather the storm."

Dubinsky took other measures--changing the focus of his marketing from things like process improvement and quality control to cost savings; scaling back on costs like IT; and accepting consulting jobs he would have rejected previously.

What types of measures will you have to survive the downturn? Here are some expert tips to see you through to the end.

Using People Smarts
Common sense dictates that a hiring freeze--and when times get worse, a salary or bonus freeze--is preferable to layoffs.

Dubinsky says he's cut back on hiring to maintain good salaries and benefits.

"I thought it was better to have fewer people that are happy about their benefits being maintained than to bring people on and have a large group complaining about crappy benefits," he says.

Sally Thornton, HR expert and co-founder of Flexperience, a staffing solutions company, agrees that banning bonuses is fair game during tough times. Do what you must to keep high performers around, however. "The first people to leave an organization in trouble," she says, "are people who have lots of choices in employment."

Layoff rumors--whether unfounded or not--can be huge morale and productivity killers during a downturn. Face those rumors head on.

"The best thing a company can do is have a solid communication plan so that a culture of clear information and respect is maintained--or even gained--during difficult times," Thornton says.

If your business's circumstances are so dire as to require layoffs, do so carefully. A disgruntled ex-employee could bite back with a discrimination lawsuit for unlawful termination.

Ray Harris, a partner at the Dallas law firm Schachter Harris LLP recommends targeting positions that can be eliminated before identifying specific employees.

"This approach will help demonstrate that the decision to terminate a particular employee was based on objective criteria," Harris says.

Refocusing Your Efforts
Switching gears when approaching customers--as Dubinsky has--is a must during a downturn. Everyone tightens their budgets, and you need new ways to sell to your customers. One of the ways Dubinsky does this is by showing customers a spreadsheet that illustrates how much they can save with his product.

Ron Finklestein, business coach and author of 49 Marketing Secrets (That Work) to Grow Sales, suggests asking your current customers for referrals. "They know others who could use your products and services, if [you] just ask," Finklestein says. "[Referral marketing] costs no money and, if the relationship is good, this introduction can lead to some quick sales."

Finklestein advises against offering discounts during a downturn because it may lower your business's perceived value and those customers may expect the low price, forgetting "that you did them a favor."

Surviving in Retail
Bob Phibbs, author of You Can Compete: Double Sales Without Discounting, also advises against offering sales in your store.

"Discounts are never a good thing to use for people you don't know. Meaning, 20-percent-off everything in the store [sales] are giving too much away, attracting people who are only looking for a bargain," Phibbs says.

Instead Phibbs suggests rewarding long-time customers with discounts. It says you value their patronage and it builds customer loyalty.

Here are three more of his smart retail recommendations:

1. Don't panic and lay off staff. Phibbs says cutting staff will lead to those customers getting worse service or longer waits. "If anything you need to upgrade your crew--only keep the best, get rid of the worst and hire better."
2. Go local with your marketing. "Look at casting a smaller net with more regional, local or even neighborhood media."
3. Don't turn down business. No business should be considered too small. "If, in the past three years, you would have turned your nose up at--for example--ordering a shade for one window, take it and use it as an entrée into the house."

Counting Your Beans
Now is the time to take a long, hard look at your money situation. Where have you been wasting money? Where can you cut your budget? Where can you bring in more cash?

Ed Horton, Matt Kuchinsky and Kevin Ryan, CPAs and partners in the accounting firm Citrin Cooperman & Company, offer their accounting tips in case of a downturn:

  • Keep an even closer eye on your budget and receivables. "Review expenses, sales, margins, cash flow and other indicators so that you can make informed decisions in an economy that can be shifting relatively quickly," Horton says. Also watch receivables: "They can be an indicator of how hard your clients are being hit with a downturn," Kuchinsky says.
  • Get tough on collecting payments. Part of watching receivables is ensuring you have a healthy cash flow. "This includes reviewing and revising your processes for collecting payment and getting more aggressive with reminders, phone calls and offering payment by credit card," Kuchinsky says. That last item, he says, is worth the 1.5-percent processing fee to keep the cash flowing into your business.
  • Negotiate with vendors. "Many vendors will provide a discount for payment up front," Ryan says. "Others will provide discounts to loyal and longtime customers. Request an extension of credit with them, so that your business can pay invoices in 60 days, and not 30. "

Finally, begin building a cash reserve if you haven't already. A nest egg is always a good idea and it pays to have something tucked away for emergencies--say, like a recession.