Declines in consumer confidence and decreased sales threaten all businesses, but small businesses are particularly vulnerable as they often don’t have the reserves to help them weather difficult times, which seems to be the case in the current COVID-19 outbreak in the United States.
Many local businesses are losing revenue due to fears overspreading the coronavirus. Some are getting creative to stay afloat. So, how then, can you recession-proof your business? Implementing these practices will help ensure your small business’s survival and even allow it to thrive during tough economic times.
1. Protect your business cash flow
Cash flow is the lifeblood of your business; to keep your small business healthy, cash needs to continue flowing through. Now no matter how tough times get, having cash flow out of your business will never be a problem.
As long as your business exists, you will have expenses. But the harder times get, the harder it can be to keep the cash flowing in. Recession-proof your business by implementing strategies to keep the cash flow moving. Here are 4 quick tips for protecting your companies cash flow:
- Reduce and slow down cash outflows.
- Increase and speed up cash inflows.
- Position your business for a recessionary environment.
- Get your team to be more productive than they’ve ever been.
2. Reduce your monthly rent.
Call your landlord and negotiate a lower monthly rent. Sign a longer-term lease in exchange for the lower rent if you have to. Your landlord is running a business too, and they would rather have you stay at a lower rent than to have the space be vacant for months. Point out that it’s better for both of you if they lower your rent.
3. Cut wasteful discretionary spending.
These are the newspaper and magazine subscriptions that were a nice perk during the high-revenue years but now nibble away at your bottom line. However, this does not mean cutting cheap but morale-boosting expenses like cake for birthdays. Right now you need your employees to rally around the company’s survival, and a cake a month to keep morale up is well worth it. In the same vein, productivity-boosting expenses like the coffee machine or a well-stocked soda fridge are relatively small expenses where the benefits in employee productivity far outweigh the costs.
4. Review inventory management practices
If your small business holds inventory, see what can be done to reduce inventory costs without sacrificing the quality of goods or inconveniencing customers. Are you ordering too many of particular items? Can an item be sourced somewhere else at a better price? Is there a drop-shipping alternative that will work for you, eliminating shipping and warehousing costs?
Just because you’ve always ordered something from a particular supplier or done things in a particular way doesn’t mean you have to keep doing them that way – especially when those other ways may save you money.
5. Focus on the things you do best
Too often small business owners simplify the concept of “diversification” to “different”. Just adding other products or services to your offerings is not diversification. At best, it’s a waste of time and money. Worse, it can damage your core business by taking your time and money away from what you do best and/or damaging your brand and reputation. Drop the extras and focus on what you do best that is most profitable to recession-proof your business.
6. Separate the “nice to do” from the “have to do,”
It is critical to eliminate nonessential expenses during tough economic times. Ask yourself, is that activity necessary? If not, don’t do it. Also, consider cutting personal spending. Simple solutions such as brown bag lunches and carpooling can make a difference.
7. Marketing is still important
Historically, many businesses reduce advertising and promotional expenditures rather than slash fixed costs during hard times. However, studies have shown that those maintaining or increasing ad outlays during slowdowns wind up outselling rivals who cut back. Savvy marketers can boost sales and market share, even if the industry in which they compete is in a slump, by focusing on short-term tactical techniques such as sales and price promotions (including cents-off coupons and rebates) and tailoring advertising in response to the shaky economic climate.
8. Make the Most of Current Customers and Clients
We’ve all heard the old adage that a bird in the hand is worth two in the bush. The bird in the hand is your customer or client and he or she is an opportunity to make more sales without incurring the costs of finding a new customer. Even better, he or she might be a loyal customer, giving you many more sales opportunities. If you want to recession-proof your business, you can’t afford to ignore the potential profits of shifting your sales focus to include established customers.
The Bottom Line
While economic downturns are admittedly difficult and increase the obstacles small businesses
face in trying to survive and grow, it is not unquestionable that companies have to slash earnings and compress market share. That recourse befalls firms that take too long to realize what must be done, or which resist change. Resourceful entrepreneurs capture the available opportunities and take steps during today’s hard times to lay the groundwork for tomorrow’s prosperity.
There’s absolutely nothing that will make your small business one hundred percent recession-proof. But implementing the practices above to recession-proof your business will help ensure your small business survives tough times, such as the coronavirus outbreak 2020, and might even be able to profit from them.
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It is essential small businesses understand their financial health during difficult times. A local CPA or accountant can ensure that your business is reducing spending in areas that are nonessential while focuses on the parts of your business that matter most. For more information how an accountant can help your business during economic difficulties, such as those small businesses struggling with the coronavirus outbreak, contact our experts today!