How to prepare for an economic rainy day and keep your business thriving.
As looming fears of an economic downturn, growing inflation and rising costs plague small businesses, it’s hard to know what to do next if things become more difficult to run a small business. Running a small business is already tough, but there are steps that can be taken to help alleviate some of the strain on your purse strings and help a business weather an economic downturn. Here are 5 ways to help recession-proof your business.
- Mind your spending: Controlling spending can be hard when revenue is down, and costs are up. But now is the time to start considering spending on non-essentials and looking where changes can be made for your business. Any little bit can help increase your bottom line and give you a little excess crime. Evaluate your business’s needs and cut whatever excess you can.
- Pay down debt: Controlling your spending is one thing, controlling your debt is another. As the Federal Reserve continues to raise interest rates, accumulating more debt, or maintaining debt might get more expensive. Especially if you have lines of revolving credit! With any extra cash flow, use it to pay off some of that debt to safeguard yourself from future strains.
- Start a rainy-day fund: Nobody wants to think about the worst but being prepared makes it easier if it happens. Starting a rainy-day fund to help cover expenses, pay employees or suppliers. However, you ready yourself for bad weather, the better!
- Watch your COGS like clockwork: For restaurants and retailers, managing your cost of goods sold (COGS) is akin to finding cash stashed under your mattress; by keeping a close eye on portion sizes, keeping inventory on hand that is only necessary, you free up cash that would otherwise be tied down by useless spending. For restaurants, adhere to recipes and portion sizes properly to minimize food waster ($$$), and for retailers, forecasting sales to keep on-hand inventory reduced to what’s necessary ($$$). Another thing to do is to analyze what’s selling, and what isn’t, and modifying your product offerings to help. If that one dish or skirt isn’t selling, axe it!
- Reassess your business plan: While this should already be an annual, if not quarterly assignment, take the time to review your business plan. Evaluate your marketing efforts, don’t ignore the power of effective marketing. Even during down times, marketing can still drive people to your business by convincing them your operation is a vital need they can’t live without. Use social media, a free and expansive tool, to get the word out better. For your staff, evaluate their benefits package and assess if you need to cap them so you don’t have to lay off employees in the future. Retaining staff is vital, and even more so, it gets costly trying to replace employees after a layoff, so considering your long-term employment goals also raises your bottom line. Lastly, if you have plans to expand and grow, consider if that is a viable option now, or if waiting is the better bet.
An economic downturn doesn’t have to be scary. Knowing how to weather a storm, and being prepared for it, makes it much easier and less stressful to deal with. Consider all your options to keep your business open and thriving, even when it feels like it’s not. Just remember, all storms pass, and sunny skies are always ahead!