Small businesses are vulnerable to many things, some of them fatal, some only temporarily disabling. If your business hits a wall–as mine did a few years ago–how do you survive personally?

My wife and I had been providing e-mail and other on-line services to a scientific community for 15 years and had built a $3.5 million a year business called Omnet Inc. Then the Internet caught fire. Our academic and government customers all had “free” access. The bottom dropped out of revenues. We didn’t have the resources to react fast enough, so we shut down the service at the end of 1994.

As a corporation, the company finances were always distinct from our personal finances. However, our entire income was in salaries and dividends from the company. Like any entrepreneur, our personal financial well-being was closely entwined with our company’s health. How do you survive personally when your company goes bust? Here are some suggestions.

Prepare During the Fat Years

First re-wind the tape a bit. It is a lot easier to survive the lean years if you have prepared for them in the fat years. In my case, I had a partner who stashed cash away almost compulsively. Since my partner was also my wife, that meant personal as well as company cash. There were accounts, personal and corporate, that I had never heard of. (We had always had a division of labor: she ran the business, I did the technical stuff. You can’t be expert at everything).

How much do you need stashed away? How long do you expect to take to get back on your feet? Three months? A year? Then you need enough cash in your rainy-day fund to live on for that length of time. Are you going to try to re-start the business? If so, how much cash will that take?

Do a realistic budget, decide how many months you are likely to have to live on it, and come up with a plan to put that much money away as fast as you reasonably can. There are no magic tricks here: you are responsible for your own survival. Due to my wife’s good management, we had three years’ worth. But, there was a catch: most of it was the money we had been setting aside for our retirement. So, we were eating into our future. Nevertheless, it kept food on the table while we rebuilt.

Consider Geographic Mobility

Build geographical mobility into your business if you can. During our re-building years, we moved from an expensive western suburb of Boston to a lower-cost rural area in northwestern Virginia. This may not be possible for your business, but don’t automatically write off the idea. Think hard and creatively about how your business might move to a different location where costs are lower or where an opportunity presents itself.

In this day and age of fax, e-mail, overnight mail, parcel services, and 800 numbers, it is possible even for many traditional businesses to relocate and still service their old customers. With what you save in a lower-cost location, you may be able to make a monthly trip back to your old turf to stay in touch with customers and still come out ahead.

In our part of Virginia, business space leases for a quarter of what we paid near Boston, real-estate taxes are a fifth, and gasoline 30 or 40 cents a gallon cheaper. All of which sure makes re-starting easier, and that rainy-day fund lasts a lot longer.

Manage Your Children

Of course, mobility–and everything else about personal-financial management after a business downturn–applies to you and your family. We didn’t have children, which made it much easier to uproot ourselves.

We do, however, have children in our lives. Every year, we hold a week-long camp for a dozen nephews, nieces, and grandchildren that costs about $5,000, or as much as the annual cost of one full-time kid. We put the camp on hiatus for two years, as much from emotional exhaustion as because of the cost. We brought it back by popular (kid-driven) demand. If there is something that is very important to your family, better include the cost of it in your rainy-day fund. Your family has to be your emotional support in the tough years.

As for the mobility of your children, many people agonize about the effect on their children of changing schools and making new friends. It certainly depends on the age leveland a little common sense: changing school in fourth grade shouldn’t be much of an issue, but if your son or daughter is about to enter the senior year of high school, you would surely want to delay the move for a year. In any case, kids are more resilient than we give them credit for: generations of “service brats” who grew up on a succession of military bases testify to that.

Of course, moving is likely to be an emotional issue. It may mean leaving the area where you grew up, went to school, or where your family is. But, it can also be an adventure. Think of it as part of the challenge of being an entrepreneur.

Revisit the Nuts and Bolts

Consider switching from owning to renting. We occupied half of our own office building. We downsized to an eighth of it and sold the building, with a guaranteed rent for ourselves for at least a year. It cut our expenses for legal and accounting as well as upkeep, cleaning, snow removal, and taxes. It also gave us much-needed flexibility.

Get good business advisors. They’ll help you build in the good times, and they’ll have an objective view of where you are at and can give you early warning of the bad times. In our case, we consulted with our accountant, who is also a valued business adviser, a year before Omnet folded. It was he who told us to see the handwriting on the wall. Entrepreneurs frequently are too emotionally tied to their business to think they might fail.

Once you see the inevitable, move quickly. Downsize fast, don’t kid yourself. Get expert help. A good accountant like ours is worth his weight in IRS forms in these circumstances. We began planning the process right after our consultation, almost a year before the shutdown. Don’t wait until the sheriff is knocking on the door.

Look for expenses you may not think about. Do you pay taxes on your inventory? Get rid of it. Don’t store your now-superfluous office furniture and computers. It’ll be cheaper to buy new onesas you need them when business picks up again. (Particularly computers: by the time you need them again, they’ll be obsolete.)

Think cheap. For internal use, we had always reused paper that was printed on only one side. Our internal memos were printed on the backs of other people’s proposals and RFPs. It was great preparation for the revenue hiatus.

We had never been very much enamored of luxuries and toys. The exception was a big house in a pricey suburb, which took us quite a while to sell. But, some of us do get used to the perks of owning the company. Face the fact that you can’t allow yourself the luxuries that you had when you were riding high. This sounds obvious, but I have watched a lot of friends delude themselves about what is a necessity and what is a luxury. It may not matter when things are going fine, but it’s a bad habit to hang onto when times are tough. Frankly, the luxury car lease, cell phone, and country-club membership are probably not necessities.

What is essential? Resources that are needed for you to stay in contact with the world and your former or potential customers. This might include telephone, fax, and e-mail, and a supply of company letterhead.

Prepare a plan for managing financially when the cash flow stops and follow the plan. To recap:

• Store cash away
• Cultivate frugal habits which will serve you well in lean times
• When facing the inevitable, downsize and consolidate quickly
• Get expert advice for the downsizing phase
• Be flexible: consider a new location where the money goes further
• Be hard-nosed about evaluating your needs

There are those who will object to planning for failure. I don’t agree. Personally, I don’t do my best work while I am scared. Manage your cash and save for the future while you build for success. If things go bad, you’ve given yourself the resources and tools for a second chance.