When economists talk about the threat of impending recession, do you worry whether your business can survive?
Declines in consumer confidence and decreased sales threaten all businesses, but small businesses are particularly vulnerable as they often lack the reserves to help them weather difficult times.
Most businesses don’t emerge unscathed from a recession. But careful preparation determines whether you survive an economic downturn. Below are tips to increase your company’s odds of survival during tough economic times.
Protect Cash Flow
Cash flow-through is necessary to keep your small business healthy. The harder times get, the harder it can be to keep revenue streaming. You can offset the risks by implementing strategies to recession-proof your business. See Ways to Improve Your Cash Flow.
Diversify Revenue
Recessions typically spread through the supply chain. It often hits your buyers before it hits you. Their problems quickly become your problem. Avoid having your revenue heavily dependent on only a few customers.
Look over your customer mix. If any single buyer represents more than 10% of your business — or your top five client’s together account for more than 25% — you need to diversify.
To expand your customer base, consider tapping into other markets or ramping up your marketing budget. Forge a variety of new relationships and add multiple small revenue streams.
Reduce Inventory Costs
Inventory accounts for a large portion of your operating expense. Consider how much cash is tied to the supplies on your shelves. This is essentially cash that will be difficult to liquidate during a recession.
Look for lower supply chain costs without sacrificing quality or disrupting customers. Begin by thinking lean. Do you need to stockpile as much as you have? Ask yourself how much you really need on hand to meet demand.
Perhaps drop-shipping is an alternative for your company. Drop-shipping eliminates shipping and warehousing costs. Consortia and automation are other cost-cutting measures to consider. See 4 Ways to Reduce Procurement Costs for Small Businesses for other options.
Reduce Expenses
During times of financial instability, look for the things you can live without. Successful entrepreneurs understand the difference between what’s discretionary and what’s essential. Learn to spot small indulgences that eat away at profit without stimulating growth.
Re-evaluate your company policies for travel, per diems, and office supplies. Determine if you can sublease some of your space or equipment to offset the necessary operating expenses.
When times get lean, you’ve got to know what you can live without. Every entrepreneur should be able to spot the small indulgences that are eating away at profits without stimulating growth.
Don’t Cut Back on Marketing
In lean times, many small businesses make the mistake of cutting their marketing budget to the bone or even eliminating it entirely. But lean times are exactly the times your small business most needs marketing.
Potential customers are also feeling the pinch and looking for alternatives in their buying decisions. Help them find your products and services so that they choose you by getting your name out there. So don’t quit marketing. In fact, if possible, step up your marketing efforts.
Manager Your Debt and Credit Scores
Debt compounds quickly when budgets tighten, so pay it off while you have the cash. Start by knocking down your higher-interest loans first, then move to the others. It’s also important to manage debts on a relational level — both what you owe vendors and what customers owe you.
Hard times make it harder to borrow and small business loans are often among the first to disappear. With good credit, both personal and business, you’ll stand a much better chance of being able to borrow the money needed to keep your business afloat if you need to.
There’s absolutely nothing that will make your small business one hundred percent recession-proof but implementing smart practices to cut cost and increase revenue, you are in better shape to weather the storm.
Accounts Receivable Financing
Every business feels the pinch of recessions and the practices mentioned above apply to all. However, B2B companies have the advantage of Accounts Receivable financing. When your cash flow is reduced, borrowing against your existing accounts receivables is a way to get the funds needed for day-to-day operating expenses.
Learn more about accounts receivable loans now, and if you are in the Georgia, call Allied Financial Corporation when you are in need for additional working capital.