Entrepreneurs who survive and prosper during hard times are the ones that can look beyond the present, those that overcome the constraints of tradition and look at their business from a new perspective and change the way they do business.
An economic downturn, in this case, COVID-19, generates contradictory tendencies. Some businesses struggle to meet their objectives, while others are profiting from the climate.
Unfortunately, economic downturns are non-avoidable when you are running a business. However, there are steps you can take while your business is in survival mode and facing a heap of challenges.
Forecast, Monitor And Protect Your Cash-Flow
The old saying ‘Cash is King’ can’t be truer in the current financial climate and that which is to come.
Right now, your key asset is cash, and it should be your number one priority to access this.
For your business to keep running, you need to keep your income flowing in and slow down the outflows of cash, by either reducing or put your expenditure on hold. Another way to free up a bit of money is to lower your inventory hold and only buy what you need. Do not compromise on the quality of goods or inconvenience your customers, though.
Make sure you know your numbers and create a proper forecast for the immediate, medium- and long-term future. Understand where your lever points are, so you can easily pull back or push, depending on your cash position and the economic climate.
Revenue, Price Points & Products Or Services
The reality for small businesses is that they will have fewer sales.
- Boost your Cash-flow by creating multiple revenue streams. Position yourself as a great value. Consumers would want more value from their purchase during these times.
- Several revenue streams will mean your business will be flexible and be able to protect cash-flow.
- Do not leave all your eggs in one basket.
- Review and adjust your price points. It does not mean ‘slash’ your prices to the bone to drive more demand, instead change your marketing message to highlight the value of your products or services.
- Review and rethink your products and services. You might be able to come up with something completely different. Repurpose your products or services for another market.
- Now is the perfect time to launch a new initiative and take some market share. It will put your business in a position to speed up the recovery.
- With that in mind, do not let new shiny things distract your form your primary business, do what you do best, and be profitable.
- And most importantly; Focus on your receivables. Offer your customers a discount for paying earlier. Don’t offer this to all your customers, but work something out with your loyal and best-paying customers.
- Be aggressive in your collection; your business needs cash to survive!
Expenditure & Discounts
You must review your expenditure. Even if you do have enough cash, you should be prudent and responsibly consider where you can make savings. You want as little cash outflows during the downtime as possible, especially if your sales are not at the same level when you are fully operational.
A few key areas to review and negotiate:
- Rent: Negotiate a lower rent or a rent holiday with your landlord if you do not own the property. You could negotiate terms, increasing your lease period in exchange for a lower rent. Remember, this is your landlords’ income. They would want to stay afloat as well; therefore, the likelihood that they would want to keep you in the property for long is high, and they might be willing to negotiate a lower rent, rather than having a vacant space for months.
- Utilities: Power, water, phones & internet suppliers can offer a short-term deal to small business owners. Call their competitors and get a price and then talk to your vendors to renegotiate your pricing with them.
- Discretionary Spend: Review all your other expense lines. Do you need the newspaper, or magazine subscription or is it a nice to have? Do not cut back to much on things like the coffee machine (if your staff is at the office). Remember, it is just as difficult for them, and this is a small price to pay for morale and productivity.
- Marketing: Most people will just cut marketing from the word go, but that can damage your business. Each business is different and should review their marketing spend according to what they are trying to achieve. It is more appropriate to change the way you do your marketing to ensure consumers chose you above your competitors.
- Payables: Negotiate better payment terms with your vendors. For example, you could ask for a 45-day, instead of a 30-day payment term. If your vendors can’t support the extra days, due to their cash-flow, ask them if you could get a 1-5% discount if you pay early.
- People: This is the hardest one out of all. However, if you do have to layoff people, make sure that you have a strategy in place on how you are going to cover the gaps and don’t leave people hanging. It is better if everyone knows what is coming, and those staying behind can help you turn around the business. If a at possible, sligtly reduce hours. For example, stop all overtime work or close your business earlier if you pay wages by the hour, this can save a lot of money. And remember, you are not exempt, you will sacrifice a part of your salary. If you have employees, this will encourage them to support your business even more.
The key is that you do not cut so much of your business expense that you can no longer render an affordable service or product to your customer. Be cost-efficient.
Your goal should be to focus on being different because the world we know is now changed.
Your customer will change the way they think, feel, and buy. It has already changed. Do not get left behind. Change is good!
The moral of the story is that nothing we suggest, or you try, will make your business 100% ‘weather’ proof against an economic downturn, but implementing some of these tips, can assist your business to survive through difficult times and position you for a better outturn.
Don’t wait until tomorrow. There is no better day to start than today!
Lessons Learned From Other Small Business Owners
MYOB interviewed two entrepreneurs who navigated their businesses through a downturn.
Here are their lessons learned:
- Use the past as a guide for the future.
Looking at the past recessions can guide your thinking and lead to positive outcomes.
- Cash is King!
Adjust your inflows and outflows to maintain a healthy cash-flow.
- Excellent customer service stick.
Show customers you care, look for opportunities to show them you are devoted to them.
- This too, shall pass!
Remember, the uncertain times are temporary. The effort you put in during this time will pay off in the future.
You must stay connected. Get advice or support from consultants or an advisory board.
Map out your strategic plan and set specific targets to keep your business on track.
Be on top of your numbers. You might not be financially savvy, but make sure you have enough support throughout the economic downturn and after to ensure you and your business stay afloat and rise from more robust.
If you would require any support or would like to talk through how to Forecast, Monitor and Protect your Cash-flow, then give us an obligation free call, to see how we can support you. Beyond Financials 0800 00 48 68 or send us an email at email@example.com and one of our partners will get in touch with you.
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