The economy can often be unpredictable, and while economists can tell when things are going to slow down it isn’t always possible to predict a downturn. When the market crashed in 2009, many small business owners were caught unawares, and they lost their businesses. While the economy is strong now, and small businesses are thriving, it isn’t too early to prepare your business to last if things change.
Prepare for the Worst
The hope is that things will only slow down temporarily, but no one knows what the reality is. The key to keeping your business will be preparing for the absolute worst: a long, drawn out recession that takes a few years to correct. What does this mean for business? It means you need to have financial reserves, clients/projects that aren’t economy impacted, and a plan for if new clients stop calling.
Build Up Cash Reserves
While keeping cash reserves up at all times it is important, it is even more important as things start to slow down. At the very early signs of a recession it is important to slow down cash outflows. This can mean starting small (no more office lunches) to the large (layoffs). The larger your cash reserves the more slowly you can implement these things.
At the same time you need to increase cash inflows. Pick up as many clients as possible, require larger retainers, and continue to put out excellent work so that your business stays strong. Keep your team motivated through new contracts and projects as you gear up for the slow down.
Lower Your Inventory
If you are in a business that requires inventory it may be a good idea to cutback what you keep on hand. This can be a risky move, because if you are overzealous you will reduce your inventory so much that it will impact your customer service. Instead, focus on cutting back on items that aren’t quite top sellers. If you have a rule that you must have 50 units of everything on stock, but you have an item where you only sell five per month, it may be time to cut that stock back to 10.
Automate What You Can
Even though a recession may still be years away, automation now can save money later. In our previous article we talked about implementing technology even when people are reluctant. Here is a very good example as to why it is important. Freeing up your employees’ time to focus on client development and other business tasks means you can increase your cash flows. Technology and automation gives you this opportunity.
Don’t Stress Now
The most important thing is to not overreact. Don’t start laying off people and cutting salaries at the first sign of a slow down. It is important to focus on the present, keep clients happy and paying, and continue to run your business. Putting plans in place for a downturn is important, but it can’t dictate every aspect of your business now. Instead focus on good business practices that lay the foundation for success no matter what happens.
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