We’re not going to beat around the bush — as of publishing this, we’re in one of the most comprehensive global recessions we’ve ever seen, thanks to the COVID-19 pandemic. Supply lines all over the world have been cut off as workers are told to stay home. At the other end, retailers are closing locations, cutting off wages and purchasing opportunities alike. Even if you have the cash and want to stimulate the economy by buying things, there’s nowhere to shop.
That doesn’t mean the world is ending, but it does mean that the stock markets have taken a bigger hit than most of us have seen in our lifetimes. Businesses everywhere are suffering, and some of them won’t make it out the other side of this.
When a recession like this happens, small businesses are often the ones that take the biggest hits to their revenue. We don’t know how long this one will last or what the world will look like when it’s over, but you can take steps to ensure that your business is as prepared as possible when it happens. Here’s where to start.
1. Pay Attention to Your Cash Flow
You’d think this would be self-evident, but a surprisingly high number of small business owners don’t keep a careful eye on their cash flow. Some don’t even know their numbers. As a result, according to one study, 82 percent of businesses fail because of cash flow problems.
Remember, your expenses aren’t going to go away when the economy gets bad, so keeping cash flowing into the business is going to be crucial to keeping the lights on. What can you do to bolster your cash flow?
Crunch the numbers on how much you expect to make in the next year. You don’t want a bad financial situation to sneak up on you, and looking ahead can show you what kind of margin for error you’re working with. If you lost a client or your projected cash flow dropped by a certain percentage, what would you do?
This means being a stickler about payments, too. When times are good, you can afford to set a 90-day payment deadline and let the money come in when it comes in. When times are tight, you need a little more consistency. Set a 30-day payment deadline and don’t be afraid to bug people about it. You need incoming payments to be predictable.
2. Don’t Stop Marketing
In any downturn, keeping costs and expenses low is a priority. As a result, executives tend to examine their budgets line by line, prioritizing the most important items and cutting the most disposable. 401k matching isn’t crucial to keeping the company going, but rent and electricity are — that kind of thing.
Where companies often go wrong is when they think of marketing as a non-essential line item. In the spring of 2010, the Harvard Business Review published a series of very in-depth analyses of how companies fared during the 2008-2009 recession and which companies made it out the other side. What they found was that marketing was strongly correlated with success:
One combination has the greatest likelihood of producing postrecession winners: the one pursued by progressive enterprises. They develop new business opportunities by making significantly greater investments than their rivals do in R&D and marketing, and they invest in assets such as plants and machinery.
The fact is, marketing is the only way that people find out about your business at all. What you need in times of hardship isn’t a machete, it’s a scalpel.
Don’t just slash that line item entirely. Dissect your marketing budget, scaling back the strategies that are generating the worst returns and boosting the most successful ones. Put extra effort into keeping your existing customers happy — a happy customer will advocate for you to their friends, family, and peers. And keep a close eye on what’s working and what’s not. If you’re planning deliberately and intelligently, marketing should be making money, not losing it.
3. Stick to What You’re Good At
Diversification is a great idea for small businesses to capture different markets and different customers, but it shouldn’t mean being different just for the sake of being different. Adding products and services to your portfolio isn’t effective diversification if they’re not making you any money, and it might even detract time and money from the things that are the most profitable. When times get tough, trim the fat and focus on the offerings with the best return.
4. Make the Most of Your Current Customers
Your current customers are your best advocates when it comes to attracting new customers — but only if you keep them happy. If you focus your attention on keeping your customer base well-serviced and satisfied, you’re more likely to attract new customers, sell new products, and upsell the customers you already have.
- Solve their problems. The number one priority when it comes to your current customers is making sure they don’t have any trouble with your product, and that means putting the resources in place to help them whenever they need it.
- Be timely. No more canned emails saying “Thanks for your inquiry, you’ll receive a response in the next 3-5 business days.” If a customer has a problem, they have a problem now.
- Solve for the future. Some problems are easy to fix now, but they’ll keep coming up. Try to look ahead and find a broader solution that will keep the problem from repeating.
- Help customers succeed. That means anticipating why they bought your product in the first place and what they’re hoping to get out of it. Make sure they have the educational resources they need to get the most out of what you’re offering.
5. Talk to the Bank Now, Not Later
If things start to look bleak and you’re worried about making your mortgage or other loan payments, don’t wait until you’re on the verge of default before you tell your creditors. Remember, the bank doesn’t want you going out of business any more than you do — if you go under, they never see another dime of their loan.
That’s why you should be focused on securing financing before you need it. SBA-guaranteed loans take time to process, and you’re a lot less likely to get one if you’re already underwater on your current loans or lines of credit. Get a business credit card too — if you have to carry a balance to fill the gap between late client payments, you don’t want it to affect your personal credit.
This is where having a personal, honest relationship with your bank can make a big difference. A big bank will have lumped you into a group based on a few basic criteria — at First Western Trust, we examine every single aspect of your finances and your business, so when you need help, we know exactly where to start.
Talk to First Western Trust
At First Western Trust, we know that your personal wealth, business wealth, goals, and priorities are all intertwined — you can’t focus on one without taking the rest into account. That’s why it’s so important to take an all-encompassing, holistic view of your financial situation so you can properly plan for what might lie ahead. If you’re ready to take a deep dive into your finances and secure your future, talk to First Western Trust. Our experts can help you prepare for anything.