How your business does during and after a recession depends mostly on how you deal with cash flow, manage debt, set up crisis management, use proactive accounting and deal with your taxes. Here are some tips regarding small business survival in a recession.
By definition, business falls off during a recession and no matter how hard you try it can be difficult to beef up sales until economic conditions improve. Thus, you need to reduce your cash outflow.
When you use intelligent business tools like QuickBooks custom reports, you can spot the expenses that do not have a strong benefit. Cut them out. These include entertainment, subscription, and personal expenses that do not have a direct effect on improving cash flow.
During tough economic times, you can often get better terms on buying and leasing equipment. Consider renegotiating terms on equipment and ask for extensions or new payment terms from your suppliers and vendors.
While it will not be easy, increasing your cash flow is possible Many of your customers will be as strapped for cash as you are. However, if you offer attractive payment terms like credit card payments or zero percent financing, many will continue to make purchases that they really do need to make.
However, this is a good time to look closely at customers who are likely to default on their payments. The best approach here to make a sale, keep the customer, and not lose money is to take the “how much can you afford and when” approach.
Those who use the Profit First system should not immediately change their profit percentages!
The most important thing to ensure small business survival in a recession is to avoid taking on new debt in an effort to maintain your business, in the same manner, it has been running up to the recession. It may be tempting to leverage debt in order to gain what you believe are “high probability” returns but do this with extreme caution if at all. Likewise, be wary of taking out short term loans to help with decreases in cash flow.
The better choice is to renegotiate with lenders for better terms. You will very likely not be able to reduce the loan amount but may be able to get a better interest rate, reduce payment frequency, or extend the length of time needed to pay off your debt. Smart lenders know that during such trying times it will be better to get their money back at a slower rate than to lose what they have loaned out!
And, above all, avoid taking on credit card debt, even when you get an offer for zero percent interest because that will eventually convert to twenty percent or more.
Small businesses always have issues to deal with even in the best of times. And, very often these same issues of sales, profit, and organization get worse during difficult periods. At Exigo Business Solutions in the Kansas City area, we are coaches for the Fix This Next approach to efficient and profitable business management. The hallmark of this method is that you identify and solve the most basic issues and then move up to the next issues. The unfortunate fact is that too many businesses gloss over problems with sales or profits in good times and such problems multiple during a business downturn.
A good approach for ensuring small business survival in a recession is to get in touch with a business coach that uses the Fix This Next approach. Set up meetings once or even twice a week to identify, fix, and track critical issues.
Things you can do first of all include looking at your mix of products and services in order to put your major emphasis on those that produce the highest margin of profit. Get in touch and stay in touch with your best-paying clients to make sure that you keep them during the financial storm.
This is also a good time to look for recession-resistant businesses like those selling consumer staples, funeral services, or even gambling. See if you can make offers that these folks will find attractive during the recession and after.
And, to the extent that you have a healthy cash reserve, this can be a good time to buy out competitors and enlarge your market share.
At Exigo Business Solutions we commonly tell potential clients that when you outsource your accounting it can pay for itself. Good accounting does not just do the books and your taxes. Good accounting helps you more-efficiently manage your business, find and cut out hidden business expenses, and take advantage of emerging opportunities.
An excellent account move is to set up new general ledger accounts to make management more transparent. Fine-tuning your inventory management can produce very helpful reductions in expenses. And, streamlining your automatic invoicing can greatly improve collections at any time.
This is also a time to plan for the future. Use the “downtime” during a recession to conduct reviews of the last three years of your products and services, your clients, and your business practices. This will give you insights that will help during the recession and during the recovery.
It may be tempting to delay paying taxes during an economic downturn and that may sometimes be necessary. But, delaying tax payments is like taking on new debt. You will simply need to make payments later when the recession could just as easily be worse!
If you are dealing with difficult business issues during this or any recession, contact us at Exigo Business Solutions for help.
