Want to Make Your Business Recession Proof?
If you really wish to make your business recession proof, it will take a lot of work…and some tips along the way. The Coronavirus pandemic has turned the global economy — and stock markets — upside down. If we’re not already in a recession, it’s likely we will soon be. Most Wall Street business experts say it could be worse than the great recession.
This is a big change from the decade-long period of stable growth most small business owners became used to after the last recession. It presents challenges many have never faced before.
It’s not all gloom-and-doom. Unlike larger corporations, small businesses are nimble. They’re able to quickly take steps to survive, and even thrive, during tough economic times.
Here’s a checklist of things to do right now to recession-proof your business. They’ll help it come out of the COVID-19 economic crisis stronger than ever.
Get control over your cash flow.
The most important thing you can do when it comes to being recession proof is to keep cash flowing into and out of your business. After more than a decade of flush economic times, most business owners take it for granted that cash will come in and it‘ll be available to pay suppliers, real estate costs, salaries and more. When a recession hits, cash continues to flow out, but less flows in. This causes cash flow problems.
Do an analysis to have a clear picture of how much money you’re taking in and what you’re spending it on. It’s the only way you can make smart financial decisions as times get tougher.
Tip: When you do your cash flow analysis, look for ways to cut expenses. It will provide working capital to take advantage of unexpected opportunities.
Keep your business and personal credit in good shape.
It’s likely that your small business is eligible to secure financing to keep it afloat — and your employees working — during the recession.
Don’t make any sudden financial moves — or mistakes — that could lower your business or personal credit scores. It might jeopardize your chances of getting the business loans you need to make it through tough economic conditions.
If you’re not sure, check with a financial professional before you make any moves that could keep you from getting approved.
Contact creditors before you hit bottom.
Most people go radio silent when they experience financial stress. This is a BIG mistake. Your bank, lenders and creditors are all dependent on your business being successful. Work with them to find solutions to your problems. Don’t wait until it’s too late.
Tighten your inventory management.
You’re used to handling inventory when the economy is in good shape. You probably have more items in your stockroom than you need to get through the current business cycle. It’s likely you haven’t checked whether you can access similar things at a lower cost.
- Do I order too many of certain items?
- Can items be sourced at a lower price without sacrificing quality?
- Could things be shipped as needed to avoid storage fees?
The sooner you get your inventory management situation under control, the faster you’ll be able to recession proof your operation.
Recession Proof Top Tip: Focus on what you do best.
Many small businesses added new products and ancillary services during the economic boom to bring in additional revenue. Diversification can also cause business owners to lose focus during recessions.
Figure out whether it makes more sense to continue to diversify your offerings or return to your core — and most profitable — competencies.
Accelerate your collections.
How long do you wait before you contact customers to check on past-due invoices? If you’re like many people who own businesses, you don’t want to irritate or antagonize them. You probably put it off for 45 or 90 days or more.
During a recession, this isn’t prudent. Once a bill is 30 days overdue, ask clients for an update. Usually all it takes is a prompt to get them to pay up.
Tip: During a tough economic times, move away from billing customers and encourage them to pay right away using credit cards.
During tough times, people appreciate “extras” that brighten their days. Under-promise and over-deliver. Add extra value to everything you do. It makes people feel they’re getting more for their money. Going above-and-beyond shows that you care and will pay off to your bottom line.
Hire top talent.
During recessions, unemployment is high and some good people who might not otherwise be available are looking for jobs. If you can afford it, make some new hires that will take your business to the next level.
Tip: Salespeople are often the first to experience layoffs during downturns. Try out some new sales reps with little or no risk by offering short-term commission-only contracts. If things work out, make them full-time employees.
Think like a predator, not a victim.
The reality: Some businesses won’t make it through the economic downturn.
The opportunity: Plan now for luring customers away from failing competitors. Figure out what gives your business an edge over each of them. Then develop marketing campaigns targeted to each competitor’s customers.
Tip: Targeted marketing doesn’t have to be expensive. Social media and search engine advertising are cost-effective ways to reach the people you want and deliver very specific messages.
Don’t forget your current customers.
In good times, many businesses focus exclusively on finding new buyers. However, it’s usually more effective to sell more to your current customer base.
Create a grid of cross- and up-sell opportunities for all your business offerings. Then go through your customer database to figure out who you can sell more to. You’ll find that every sale you make to an existing client is far more profitable than one to a new customer because you spend less on prospecting.
Adjust sales goals.
Is your business plan focused on hitting quarterly, semi-annual or annual sales goals? That’s fine in a normal economy. When things are in flux, successful businesses set monthly targets. It provides greater flexibility to be able to respond to changing conditions.
Start by figuring out how much you have to sell to meet your monthly cash flow requirements. Then back out everything you must do from a sales and marketing perspective to achieve your sales goals. Don’t beat yourself up if things go off track. Make adjustments so you can reach — or beat — your goals.
Never stop promoting your business.
A major mistake businesses make during slowdowns is cutting or eliminating their marketing efforts. It’s counterproductive. During difficult times, you have to market more to get people to do business with you.
Consumers during recessions feel financially insecure and seek out sensible ways to spend their money. Your business must be front-and-center when they’re looking for new options.
Remember: Marketing your business doesn’t have to be expensive. Social media, search engine marketing, webinars, email, blogs and local advertising are all cost-effective ways to connect with people looking for what you offer.
Tip: Track the effectiveness of your marketing campaigns in real time. During a slowdown, you need to quickly dial-up things that are working and fix or eliminate ones that aren’t.
Communicate with customers.
Meet regularly with your clients. Find out whether they’re happy with your products and services. It protects against them moving their business to a competitor. While you’re at it, look for opportunities to get them to buy more from you.
Tip: One of the best ways to find new business opportunities is to ask for referrals from happy customers. Make it a point to request them at the end of every interaction.
The worst thing you can do is face future financial challenges with fear. Instead, prepare for hard times. View this next recession as an opportunity to take your business to a higher level and beat the competition.