As economic experts discuss a potential economic crisis, it’s important to begin adopting strategies for managing your small business during a recession. Doing so can help your business stay afloat and even thrive during difficult economic times.
Keep in mind that recession planning works best when you focus on what you’re good at. You can improve your small business’s cash flow by increasing profits or being mindful of your spending and saving. If your business offers multiple products or services, it may be time to reevaluate what works and what doesn’t, a recession plan that includes narrowing your focus allows you to continue serving customers and clients without maxing out your budget or wasting resources.
Increase Cash Flow
If your small business is still playing catch-up in revenue and sales, you may need to rely on strategy to increase your cash flow steadily. Here are four tactics you can try while managing a business during a recession
- Build A Cash Reserve: Managing a business during a recession requires building a cash reserve. It’s a good idea to keep at least two months’ worth of business expenses in cash at any given time. Another option for a recession plan is to allocate a certain percentage of your business’s revenue each month to a designated savings account.
- Review Accounts Receivable and Payable: You should review accounts receivable and payable. Maybe you could offer a discount if clients pay you in 15 to 30 days or start charging interest for payments after 30 days. On the other hand, if your payables’ timeline is too short, you might want to ask your suppliers for a longer payment term or a discount if you pay before 30 days.
- Tighten Your Inventory: Improving inventory management can help you save money while maximizing sales. If the orders you place are too large, you may end up with dead stock every month. Or you might find that some products simply don’t sell as quickly as others. Whatever the situation, buying and storing products you can’t sell promptly ties up cash flow. One option while recession planning is to start reviewing your slow-moving inventories and sell them at a bargain. However, it’s also crucial to review your sales and forecasts to make sure you’re ordering the correct amount of inventory.
- Take Advantage of Your Assets: If you’ve invested a good chunk of cash into your assets, make sure they’re working for your small business. If you have extra space in your warehouse or office, consider renting it out. You could also sell or rent unused equipment, whether it’s a forklift from your warehouse or a used copier.
Don’t Cut Your Marketing Budget
Managing a business during a recession means investing in marketing You may be tempted to cut your marketing budget to save money; however, promoting your business is critical to recession planning for overcoming difficult times. Never stop marketing
, strategic promotion can help you retain current customers and secure new ones.
What you need to do during tough economic times is reconsider your marketing process. Reevaluating your marketing strategy’s effectiveness starts with reviewing the ROI for each of your distribution channels.
Rather than investing in multiple marketing methods, try putting your resources into strategies with strong records of success. Depending on your business, that might be social media ads, email campaigns, or videos.
Once you determine which areas to invest in, examine your messaging to make sure you’re appealing to your target demographic. You may need to refine your brand voice, change your tone, or create a better value proposition to establish a rapport with potential customers and foster trust.
Cut Unnecessary Expenses
Another way to control your finances while managing a business during a recession is to cut costs. To prioritize your expenses, try doing an expense audit. An expense audit is when you go through all recurring business expenses and ask two vital questions: 1) Do I need this expense? 2) Can I get this service or product at a cheaper cost?
The key is to reduce or eliminate costs that have little to no negative effect on your business operations. You may temporarily scrap the office lunch budget, for example, or switch to a more affordable payroll provider.
It’s also a good idea to look for money leaks, areas that drain your business’s cash. Money leaks can be straightforward, like a virtual storage subscription you never use, or more systemic, like high job turnover resulting from inadequate training.
In any case, eliminating unnecessary costs and fixing internal money leaks can free up cash for operating expenses and marketing efforts.
Overcoming tough economic times requires a well-thought-out recession plan and adaptability. Focusing on survival only doesn’t mean you will have a business after the recession: however, focusing on growth and innovation alone doesn’t mean you will survive during the recession.
It’s essential to balance your immediate financial needs with your business goals and diversifying your revenue can help. There are plenty of ways to do it. For example, if you have a brick-and-mortar store, tap into e-commerce. If you are only selling in one country, think about expanding to another country. Creating a membership product is another good way to bring consistent revenue to your business.
If you’re not sure where to start, try reimagining your current offerings or brainstorming ways to repurpose your work. For example, if you run a restaurant, you could sell an eBook sharing your customers’ favorite recipes and the stories behind them. If you own a tutoring center, consider turning a few of your lessons into online courses.
Consider Your Financing Options
Financing can give you the cash flow flexibility you need to survive a recession. Before you investigate your options, though, review your business’s financials and make a cash flow projection for the next 12 months and beyond.
Next, take time to clarify what you need and how you’ll use the funds to grow your business during the recession. This is especially important if you are taking on a long-term debt where the loan repayment depends on your business growth.
Having a good understanding of your small your business’s financial health and goals is key to determining which type of financing is best. Depending on your situation, you may want to consider one of the following loans:
- A line of credit can help with temporary gaps in cash flow or ongoing operating needs, like rent or utility bills.
- A term loan is a good option if you need money for a more significant purchase or capital-intensive growth project.
- Equipment financing can be helpful if you need to replace or upgrade your business’s technology or machinery.
- Invoice factoring may be a good solution if most of your cash flow is tied up in accounts receivable.
For more information on SBAC LOAN PROGRAMS, CLICK HERE.
Build Customer Loyalty
Customers are your business’s lifeline. Without customer loyalty, your business won’t last during good times, let alone during an economic downturn or recession.
Fortunately, times of massive uncertainty like recessions give you an amazing opportunity to build loyalty with clients. Recessions cause fear in everyone, but if you can stay alongside your clients during these challenging times and add value when they are fearful, they will likely remain clients for many years to come.
In conclusion, remember to think long-term: it’s not just how you manage a business during a recession, but after one, too. A recession can present many obstacles for your small business, but it can also provide opportunities for growth and success.
The article was written by:
Small Business Assistance Corporation