Economic downturn. Recession. The Great Depression pt 2.
Every business owner dreads the concept of going through any financial ordeal, let alone an economic slowdown. But it's the smaller companies that should be especially worried. Studies show that small business owners take the biggest hit during economic downturns.
Yet, it's inevitable.
Since the beginning of capitalism, we've witnessed recessions occur at almost predictable intervals.
It's been since 2008 when we had our last economic downturn, with yet another looming on the horizon.
But whether you're looking to overcome what's coming in 2020 or the recessions to follow, you'll need to keep the following tips in mind.
Know the Tell-Tale Signs of a Pending Recession
There are several ways to identify when a recession is coming soon. You may notice the shift locally, such as customers losing confidence and holding back spending.
This happens when layoffs occur and there's economic uncertainty. So they cut back on unnecessary spending. When this happens, it can hurt retailers, restaurants and other businesses that sell non-essential products or services.
But it's also critical to pay close attention to what's going on outside of your business. For instance:
- Interest rates get wonky (i.e., the yield curve)
- Factories and warehouses in the U.S. slow down
- Unemployment rates begin to soar
- The stock market takes a dive
- Credit card debt and late payments skyrocket
- Homebuilding slacks off
- Inflation of prices occurs faster than usual
So what do you do if you're seeing these red flags?
Build Your Cash Reserve
The last thing you should be doing is spending money on unnecessary expenses. Take a close look at where your money is flowing out to so you can determine what budget cuts you need to make.
Then with the extra money you're saving, place it into a cash reserve for the rainy days that may lie in the storm ahead.
Pay Off Your Debts ASAP
You don't want to allow your debts to sit around for too long. This can lead to interest stacking up, turning what could've been a short-term debt into a long-term bill.
Also, you don't want to have to pay large lump sums of money all at once because you waited until the last minute to pay your bills.
So as your bills come due, pay them off as quickly as possible.
Opt for Net-30 (or Longer) Payment Terms with Suppliers
Some supplier arrangements require you to pay in advance or at the time of delivery for goods. This can disrupt your cash flow, making it harder to build up your cash reserve.
See if you can arrange for a Net-30 payment term, which will give you 30 days from the invoice date to pay the bill. Some will even go longer with Net-45 or Net-60.
Diversify Your Revenue Streams
A pending recession is the wrong time to rely on a single stream of revenue. Because if that dries up, then what will you do?
You can counter hiccups in your cashflow by diversifying where you're getting money from. For example, if you offer beauty services, then consider selling an e-book or course that teaches others to do what you do.
Offer New Products & Services
Another way to grow your cash flow is to offer a new product or range of services. For instance, if you're a pest control company -- why not add other critters to the list?
You can even sell products like traps for large animals.
Find out what your competitors are doing to see how you can compete. Maybe they're offering something that's popular that you don't. Or maybe they're not doing something that you can, which will make you stand out.
Consider Going International
It can be tough relying on a local market to keep your business open. When things get bad in your neck of the woods, you can venture off to other areas for business.
You can start by reaching out to folks in communities and towns right outside of yours. Then if it's possible, you can expand to a global market.
This works if you offer a virtual service or a product you can ship anywhere.
Switch Over to a Contract Model
Using a contract model can work whether you're selling products or services. What this does is guarantees you a certain amount of money within a specified timeframe.
And it locks customers into a contract for an extended period of time. This makes it easier to predict your income month-to-month.
One example is to sell your service on a semi-annual or annual contract basis. This is common with pest control services and other subscription-based services.
You can make this an attractive option by offering a discounted rate for longer-term contracts.
Take Care of Your Biggest Assets (Employees & Customers)
Your business is nothing without its workers and customers. So go the extra mile to keep both happy.
Try to hold on to your best employees by making the work environment better. There are various ways you can improve employee satisfaction without monetary incentives.
For instance, allow workers to bring small pets to work, bring in healthy lunches and snacks and allow frequent short breaks versus one lunch hour.
Then for your customers, you want to focus on offering the best experience possible. Today's consumers will stick with brands that are fun and easy to shop with.
You can do this by offering online payments, offering support via text message and improving the atmosphere of your store, shop, or office.
Don't Let the Recession Hold You Back
Small businesses tend to shut down during economic downturns. But with the right preparation and knowledge, you can overcome any recession.
You'll have to do your due diligence to determine what the best moves are based on your area and industry.
Let us know in the comments if you've ever survived a recession. Or what you wish you did the last time around to keep your business doors open.