The word ‘recession’ is scary for every business. But, it’s particularly worrisome for small businesses who do not have financial cushions like many large companies. The best thing to do during a recession is to stay calm. There are things that you can do to weather the storm of a recession. So let’s take a look at what you can do survive a recession.
The secret to surviving a recession is cash flow.
At all times, you should ensure that your cash flow is doing all it can to keep your business afloat.
You should focus on these four strategies:
1. Increase the Cash Inflows
Here are tips for increasing or speeding up your cash inflows:
Keep your best customers engaged: Call, email, or send a card to your best customers. Tell them you appreciate their loyalty and continued patronage.
Collect payments sooner: Give your customers discounts to pay you sooner. For example, give a discount of 1-2% for paying off within 15 days instead of 30 days.
Continue servicing your existing customers: Use this time to remind your customers why they chose to do business with you. For example, if your USP is cost-effective, remind your customers of how you being cost-effective can actually help them through the recession.
2. Reduce Monthly Cash Outflows
Here are a few tips to reduce your expenses and reduce your monthly cash outflows:
Lower your monthly rent:Talk to your landlord and negotiate for lowering your monthly rent. If needed, sign a longer lease in exchange fora lower rent.
Cut nonessential spending: Newspaper and magazine subscriptions were a perk when things were going smooth. During the recession, these subscription costs can just nibble away at your bottom line. So, get rid of them.
Get a discount on utilities: Consider saving money on your utilities like electricity, internet, phones, etc. call up your vendor’s competitors and ask the best deal they can offer a small business like you. Then call up your vendors asking them for a discount or match the offer their competitors has given to you. If your vendors don’t budge, be ready to make the switch.
Pay payables later: Call your vendors and request them to extend their due dates. If you run on 30-day payment terms, get them to extend it to 45 days. Having cash on hand, even for an extra 15 days,is crucial for survival during the recession.
Choose leasing over buying: If you need a new computer or furniture, consider leasing than buying. Yes, you may end up paying more in the long run, but when survival is the issue at hand, you need to conserve your cash as much as possible.
3. Enhance Team Productivity
Here’s what you can do for and with your employees to survive the recession:
Reduce work hours before reducing salaries: Cutting your employees’ salary and asking them to work for the same number of hours as before will impact their productivity at some level. Rather, cut their hours and then slash their salaries.
Reduce your own salary: Before you cut your employees’ salaries, cut your own salary. If they see that you are sacrificing more than they are, they’ll stay motivated to turnaround the situation.
Lay off employees, if needed, but cut it deep, and do it sooner than later: Layoffs suck, but they are essential to keep the business afloat. If you are considering laying off employees, ensure that you cut deep enough so that you don’t have to do it anytime soon. Also, if you foresee layoffs in the near future, do it now than later.
Get everyone on the same page:Cultivate an attitude of “we’re in this together, and we are going to weather this downturn together.” Include your employees in problem-solving and be transparent in your communication with them.
4. Prepare Your Business for the Recession
Here are tips for make certain adjustments to survive a recession:
Keep your inventory costs low: Don’t tie up your cash in inventory. If you’ve stocked up in anticipation of a big order, now is the time to reduce the inventory and free up cash. Consider liquidating your worst-selling products. Also, you can lower the size of each shipment from your suppliers; if need be, increase the frequency of deliveries. By doing these, you’ll have less inventory and more money in your account.
Look for opportunities: Just like you, your competitors are struggling to outlive the recession. If you want to make the best out of this opportunity, consider launching new initiative so that you can take market share from your rivals. This will help you accelerate your recovery phase.
Revamp your marketing strategy: Consumer spending behaviour changes during the recession. They need more value for their money. Position yourself as the provider of that value, and you’ll survive the recession. Slashing price is not the solution here because it’s not a sustainable approach; instead, change your marketing message to highlight the value.
Note: Don’t forget to recession-proof your personal finances.
When the economy is in recession, it is not only your business that is affected. Your personal finance becomes vulnerable too. The above-mentioned strategies can help you keep your business afloat during recession. But you also need to take steps to make your personal life recession-proof.As you work on recession-proofing your finances, having emergency savings is of utmost importance. Most people make the mistake of not creating an emergency fund. So when they are in need of funds, they make another mistake of either dipping into their savings or selling their long-term investments. Don’t do that. Instead, get a personal loan or a personal line of credit to cover your cash shortfalls as and when they arise.
Author Bio
Lily Tran is a content writer, working for MoneyTap, who writes about all things Finance. Her passion for credit, debt, loan & investment drives her to help readers get an insight about everyday finance.