READERS MAY be familiar with the concept of the prisoner's dilemma. Having been jointly arrested for a crime, two accomplices are questioned separately and each offered a reduced sentence in return for confessing and incriminating the other.

There are no other witnesses and the evidence is circumstantial, so both would walk free if they were to keep schtum.

However, neither knows what the other will say when offered the same deal. So, faced with the prospect of a longer stretch if their coaccused 'fesses up, both will usually sing like canaries (we haven't, it must be admitted, checked this theory with the local constabulary).

The prisoner's dilemma has been used to explain all kinds of "races to the bottom" - the Cold War arms race being the ultimate example. And recessionary spending patterns are no different - nobody with a remotely cyclical business is going to get through the next year or so by valiantly splashing their cash around in a one-man bid to revive the economy while all around are cutting back.

No-one's going to thank you for spending your way into administration.

There is more to making it through this recession, however, than trimming expenditure to the bone. Cash management, credit control, personnel management, clever marketing and fraud awareness will also play a role. Read on for some ideas as to how.

MANAGE THAT CASH
Everybody and their dog is telling business that "cash is king" and advising them to negotiate shorter payment terms with customers and longer ones with suppliers.

In construction this, of course, is next to impossible. Tender prices are falling and payments are coming through ever slower - even from the public sector.

However, all creditworthy businesses are now in a strong position with their own suppliers. Bev Budsworth, founder of restructuring specialist The Business Debt Advisor, says, "Agree extended payment terms with all suppliers, in advance.

"But also offer existing debtors extended payment terms and/or discounts, and make sure your terms of business contain explicit payment terms."

While those terms may be generous, you should also make sure they are enforced - and, Budsworth continues, if you don't already have an individual who is responsible for credit control give someone that job now. It's too important to leave to account managers.

Similarly, while no-one can afford to lose business at the moment, companies have to be clear about what they define as a "client". As Budsworth puts it, "Get rid of can't pay or won't pay customers".

In fact, it could be worth going a step further. We know that one fit-out contractor who took the decision not to supply Woolworths a couple of years ago due to concerns about the retailer's credit-worthiness.

If a business can't be certain a customer is going to be able to pay, a decision has to be taken as to whether to risk supplying them in the first place - or at least whether to demand up-front payment. It's a grim choice: nobody wants to turn down work; nor do they want to do it then not get paid. Only you can decide which would be the bigger disaster.

Sadly, of course, many smaller contractors are likely to find themselves on the receiving end of such treatment merely because of their size. And not just by being pressured to pay up front for materials. SMEs are now struggling to win tenders for which they tick all the other boxes because of concerns they might go out of business before the project is complete.

In the latter case (and assuming the company's figures are good) smaller businesses that fall below the audit threshold might consider filing full accounts with Companies House anyway. Anything that provides evidence of financial strength can only help - it's a case of balancing audit fees against the cost of lost business.

CUT COSTS
It may be a cliché but it bears repeating. Depending on margins, every pound of new sales equates to a few pence of profit. Every pound saved goes straight onto the bottom line.

Many businesses will already have begun a programme of cutbacks. But it's worth thinking strategically about these.

Overheads such as rent, power, office consumables and software licences ought to be kept under review by any well-run business in good times as well as bad. For many companies, though, current conditions will provide added impetus.

Then there are those expenses that pay for themselves in times of growth but look like unnecessary luxuries when sales are heading south. If you spend £100 on entertaining a prospect and get £150 back in new sales that's great. If it only generates £75, all you've achieved is to have a nice lunch for £25.

Of course, it's never that simple - there will be cases where, for instance, such an investment means the difference between a loyal customer staying with a supplier, albeit on a smaller scale, or going elsewhere.

Other investments in this category include staff and marketing (see separate sections).

It goes further, though. This recession provides the opportunity - and motive - to review your entire business. If an aspect of your operation is both non-core and non-profitable, why keep it going? Housebuilders might have wished they'd undertaken this exercise much earlier.

According to Gary Lee, a partner in the Manchester office of insolvency and restructuring specialists Begbies Traynor, "Although times are tough, try and take a long-term view.

"Develop your business, products and services, invest in training and improve on efficiency. Go back to basics and make sure you understand what it really is the business is selling.

"There are opportunities and bargains to be had for those who have money to spend, but spend it building on what is essentially your core business model."

REVIEW STAFFING LEVELS
Worth an article in itself, staffing is probably the trickiest thing to get right. Process-orientated businesses that use a lot of agency staff can control their staffing costs quite easily but for everyone else it's a bit more complicated.

The costs of and legal issues surrounding redundancy have to be considered (though employees with less than one year's service have few employment rights and those with less than two years under their belts don't qualify for redundancy pay).

The costs of re-employing people when the economy picks up also need to be considered. Much will depend on the individual management team's assessment of how long the recession is likely to last.

Lee says, "Although it is tempting to cut costs through making redundancies, this can be a false economy for those too quick to wield the axe. A good contracts manager, credit controller or accountant can help improve efficiency and cut costs.

"If you do need to cut staff numbers, look at natural wastage, such as those wanting to take early retirement, or offering voluntary redundancies. Look closely at any contract labour instead where there are no associated redundancy costs."

For those in a stronger position, he suggests, "Instead of spending your money on making redundancies, invest in training and education that will allow you to move your people into any vacant positions. Although it might not be an option for everyone, investing in training to improve the company's skills base while the business is less busy can get it in top condition for when things get better."

MARKETING
On marketing Lee is adamant "Don't be too quick to do away with your advertising and marketing budgets.

"Although there isn't work out there for everyone, there still is for some and having a strong brand or media profile will stand you in good stead when it comes to pulling in the clients."

Budsworth, another cost cutter by trade, sounds a similar note: "Sales and marketing spend - often the first budget cut in difficult times - should be reviewed. But consider effective, highly-targeted campaigns. Opportunities often arise in tough conditions where competitors are weak."

BANKING
Bankers hate surprises. Really, really hate them - however rich that might sound after the last year or so. And contractors are now finding that the simple knowledge that there is an industry downturn is being counted by some banks as a huge surprise.

While it may be tempting to present wildly optimistic sales projections to all and sundry, this isn't the best approach to take with one's bank manager. That said, it's unwise to give a twitchy lender an unduly pessimistic appraisal of a company's prospects either.

According to Lee, with traditional lending still tight, it's also worth looking at alternative sources of finance. He says, "Switching from an overdraft and loan to invoice discounting or factoring may provide additional working capital."

FRAUD
David Alexander, director of forensic services at accountant Smith & Williamson says, "Challenging times for businesses lead to increased levels of fraud. As economic conditions worsen, more businesses and people will feel the pressure to meet targets, pay bills or even keep their jobs."

Alexander says the most common frauds during a downturn include the falsification of management accounts to earn bonuses and share options, the falsification of income to gain funding, and the inflation of results by the managers of subsidiaries in order to retain jobs.

Jan Levinson, a partner at law firm Beachcroft, also identifies the theft and sale of company data as a major risk. And she detects a new breed of fraudster:

"The fraud threat is moving down the chain from senior managers to more junior staff looking to make a quick profit. A typical fraudster is now under 30, relatively low paid and often new to their job.

"Employers not only need to be vigilant but recognise that the profile of a fraudster is changing. Two years ago, the most common profile was a male between the ages of 35 and 60, employed in a senior role and in their current position for more than ten years.

"These fraudsters still exist but economic conditions mean that the systems and controls that once applied to senior and trusted employees are now relevant to staff at all levels."

And if all this doesn't help do what Wrekin did two years ago and find yourself an £11 million Tasmanian ruby: but then again that didn't help either.