Advice to entrepreneurs when good times return: Cash flow can be the ultimate competitive advantage.

Many businesses that died during the recession had good products and services, but lacked the cash to survive a downturn. Some unlucky entrepreneurs simply opened their business at the wrong time, and couldn’t have foreseen a downturn this severe. However, many existing business owners failed to store up ample reserves and secure sources of cash when the inevitable bad times hit. They just couldn’t outlast the drop in consumer and business spending.

Meanwhile, businesses that had cash were able to do things that others could not:

- Make acquisitions (something that Google and Oracle are famous for doing during down times);

- Invest in new capacity (a strategy that Intel has made part of its strategy throughout the ups and downs of the silicon chip cycle);

- Continue to market to new and existing customers, thus remaining visible and “on top of mind” when good times return;

- Keep key people and top talent and recruit top talent from other businesses; and

- Stay alive, even if on a heavily reduced budget.

As we enter a new business cycle, there are eight important lessons to take away about creating cash flow reserves for the future:

One: Build up reserves for the lean times. Make it part of your financial planning.

Two: Put plans in place to quickly flex down on fixed costs in case the economy or industry takes a sudden downturn.

Three: Create a more flexible cost structure, for instance one with contract staff that can come and go with demand.

Four: Understand your cash flow cycle and have sources of reserve cash available (i.e., from banks, investors, inventory management, asset sales, and receivables/payables management) when needed.

Five: Continue to get lean and mean with tight operations and strong negotiations with suppliers.

Six: Set up a system to continuously measure, test, and roll out only successful marketing initiatives. Stop wasting money on marketing that you can’t measure or that is not producing a clear return.

Seven: Set your business apart with a compelling strategic edge and marketing message so that you dominate the competition. “Me-too” businesses are the first to lose revenues and cash flow in a downturn, because customers feel no loyalty to them.

Eight: In good times and bad, go out of your way to provide an outstanding and consistent customer experience. If you can, provide such great service that you become indispensable. That way, even in downturns, customers continue to come back.