By now, you’ve heard of an upcoming recession announced by several financial and economic experts. This means reduced corporate revenues, increased debt, and slow growth for companies. Remember the 2007-2008 financial crisis?
Many companies downgraded, while others defaulted. The S&P Global Ratings show the same trend today as a recession looms.
On the other hand, housing prices have risen to all-time high levels, and consumer debt continues to balloon. Combine these indicators, and you’ll see why a recession poses a serious danger to small business.
For this reason, as a small business owner, you must take necessary precautions to recession-proof your finances and your business.
Seize Every Opportunity
Opportunity knocks once in a lifetime. Answering the door makes all the difference. Even in the darkest moments, you can spot an opportunity to shed a light on a way out of the situation. Take debt, for example.
Many people view debt as a downward force on their finances. The only reason why this is true is because of poor financial management. In contrast, debt can be beneficial, especially if it helps your business offer new products or services to your consumers.
That’s how the big companies do it, but smaller ones think it must be in a tough financial situation when they see the giant companies borrowing. However, debt management starts with taking out nation 21 loans, you’re able to serve without going under.
For big companies, this may not be a big issue thanks to their deep pockets. This is not the same with small companies, and therefore, it’s important that you tread with caution.
1. Monitor Your Cashflow
Cash flow is important for any business for obvious reasons, whether big or small. Unlike your expenses, cash flow isn’t constant and in an economic downturn, the consistency you need can be even worse. This calls for creative ways to monitor and protect this important aspect of your business.
One way is by ensuring on-time payment from your vendors. In fact, review the payment period and make sure it’s a maximum of one month. This way you’ll eliminate off irregular and late payers.
However, you can also entice prompt payments by introducing discounts for those who pay up early. This is a good incentive since failure to resolve cash flow issues can strangle your business to death.
2. Develop an Inventory Management Plan
You don’t want leaks in your inventory because this is a recipe for disaster. The money you’ll get from the sale will not match the number of items, thus draining your finances every cycle. To avoid this, an inventory management plan is crucial to keep track of each item.
In addition, doing things for a long time becomes a routine and later a habit. Now, not all habits are good, but in this case, your preferred habit may be expensive. How do you place your orders? Are you buying more than you need? Can you get the same quality or even better for a cheaper price?
These questions will help you examine your inventory practices and fix any negative habits that can put your business and finances at risk during a recession.
3. Understand Your Niche
Diversification is not at all bad for any business. However, if this is the plan you have for your small business, you must be careful. You see, heading down a different path from your niche can be disastrous, especially if you’re doing it simply for the sake diversification. Remember how long it took your business to take off and the effort you put in at the initial stages?
Instead of diversifying, why not focus on your main business? Perfect your services and improve your products to become a force to reckon with in your sector.
4. The Customer Is King
Without the customer, your business would shut down. With this in mind, it’s important to always have your customers’ interests at heart. Your existing customers hold the key to future growth and retaining them should be your top priority. Remember, attracting a new customer is twice as difficult as retaining one you already have.
To retain your existing customers, offer them exclusive deals and discounts. Show them how much they mean to your business. Customers love to see their loyalty reciprocated with some form of appreciation.
If you show them love, you can be sure they’ll be back for more, and the next time they come back, they’ll tag some friends along. More customers, more revenues, and ultimately more growth.
5. Stamp Your Foot
The big companies in every sector are big because of one important factor: Market share. The only way to stamp authority on your niche is by widening your customer base. You must show your potential customers what you can offer, and it must be better than what they’re getting from your competitors.
To achieve this, you’ll have to have tons of research on your competitors. Go through their ads, become their customer, follow them on their social media platforms, and subscribe to their mailing list. Your main aim while doing this is to find the differences in their mode of operation, customer support, and service delivery that sets them apart.
Yes. You’re going to try to steal their customers.
In return, implement similar strategies or better yet, improve and tweak them to fit your company’s philosophy and mode of operation.
6. Market and then Market Some More
Beverage mogul Coca-Cola is one of the most successful companies in the world, yet despite their success, they continue to market their business as aggressively as though they just started out. This goes to show how important marketing is to any business.
In fact, you could be selling substandard products or services, but still getting in the money thanks to a killer marketing strategy. Therefore, even in an economic downturn, marketing remains a critical aspect of your business.
If you don’t market your business, consumers won’t know you exist. Many people believe marketing is for companies with massive budgets, but it’s not true. On the contrary, marketing can inexpensive, for example, by using social media platforms such as Instagram, Facebook, and Twitter.
7. Check Your Credit
It’s not always rosy in the business world. Sometimes, you encounter difficulties, and one of them could be a cash flow issue. In such a case, you may have to take out a loan to keep your business afloat, and with a stellar credit score, this can be a painless affair.
Once the recession hits, you can be sure banks won’t lend to small businesses because they know the times are difficult, even for big companies. However, with excellent personal credit, you may just be able to secure the funds your business needs. Therefore, keeping an eye on your credit is important for the future.
A recession is coming. When? No one knows exactly, but recessions are inevitable. However, you don’t have to wait and see what an economic downturn or a foolish knee-jerk reaction will do to your business. Rather, start preparing for potential problems now using the tips highlighted in this article, even if the economy is calm at the moment. When problems hit, you can activate all your defense mechanisms.