An economic downturn can make the challenge of running a small business even harder. Here are some ideas to help you keep your doors open and your dream of small business ownership alive.
Your cashflow is key to keeping your small business running during a recession. Increasing or speeding up inflows is one way to improve cash ow management. But you should also look at cutting costs where feasible and slowing down cash outflows for the expenses you have to maintain.
Review your receivables. Anything you can do now to build your capital reserves will help your business in the long run. Watch your accounts receivable, especially among customers that have lines of credit with your business. Get tough on collections with customers who are taking advantage of your payment terms.
But you don’t want to turn off your better customers, so talk to them about how they’re managing during trying times. You may consider offering incentives to your “bread-and-butter” clients with pre-payment discounts and long-term pricing.
Diversify your revenue. Even in good times, it’s not wise to depend heavily on a small number of customers or products for revenue. Diversifying your revenue ow could be as simple as adding an online store to support brick-and-mortar sales. Or, you can diversify your customer base, branching out from professional buyers, for instance, to selling your products and services to amateurs or do-it-yourselfers (a market that often grows during tough economic times.)
Scrutinize your outflows. Look at your fixed and variable costs separately. Fixed costs are often expenses that help you keep your business open and running. Prioritize the more important fixed costs by distinguishing between “nice to have” and “have to do” expenditures.
Don’t skimp on marketing. When downturns hit a business’s revenues, marketing budgets are often the first items to cut. You should carefully examine the costs you’re paying to market your business and promote your products. There will likely be some places to trim the fat, but this is also a good time to get creative with your marketing to get the most bang for these bucks.
Talk with your banker. An economic downturn is usually not a good time to borrow more from your bank. Banks may be seeking business to boost their income, but they’re also not looking to take on unnecessary risk. You may want to reinforce your business’s financial position to give your bank confidence about how your business is running.