5 Ways to Prepare Your Business for a Recession
With the coronavirus pandemic and a significant drop in the Dow Jones, many are concerned about their businesses, retirement savings, and livelihood. I shared my personal view of the economy and the likelihood of a recession in an interview with Empower Her. During this interview, I explained how small businesses can survive the economic downturn and become financially stable. Here are 5 of those strategies:
1. Take advantage of low interest rates
The Federal Reserve cut the Federal Funds Rate to .25%, which all other interest rates are based on. We should see interest rates for loans decrease but it may be just slightly since we already have low rates. You may be able to lower your payments by re-financing your mortgage or business loan. Check with your financial institution to see if the payment savings outweigh the closing costs.
However, lower rates mean you will be receiving lower dividends in your checking and savings accounts so shop around for a better interest rate. Generally, credit unions offer better interest rates even on business accounts. Here are a couple of options: GreenState or Consumers.
2. Diversify your income
As a general rule of thumb, less than 10% of your sales revenue should be derived from 1 particular customer or client. Be sure to review this periodically and try to upsell additional products/services to existing customers or attract more clients. You will also want a healthy mix of varied products/services. Meaning, if you offer 3 services, ideally you would generate an equivalent amount of revenue from all three.
3. Cut unnecessary expenses
Now is not the time to splurge. Review all of your expenses. Are there any subscriptions, memberships, or other items that are not critical? Most of us should see our travel expenses go down! If you’re allowing employees to work from home, could you sublease your office? Perhaps telecommuting could be a permanent change and you could even sell the office space. Many small business owners do not pay themselves but their business funds their personal lifestyle. Review your personal expenses and try to reduce spending. It doesn’t make sense for a lean business to pay for a lavish personal life.
I also recommend starting an emergency fund. Try to conserve as much cash as possible with the goal of saving 3 months worth of operating expenses (including labor). This should be done both in your business and with your personal savings. It will ease your stress and anxiety to know you can survive for at least 3 months with lower sales.
4. Keep inventory low
If you’re in a cyclical business (runs parallel with the economy), try to sell your current inventory and continue to keep it low. Again, now is not the time to launch an entirely new product line. Businesses need to adapt to changing market conditions and consumer demand (always) but that can be done with small pivots to your marketing (selling to a different customer avatar) or utilizing your existing inventory to create different products. Be creative WHILE being smart with your money.
5. Don’t skip payments
Many credit card companies and financial institutions are allowing their customers to skip a payment. However, in some cases, this may negatively affect your credit score. If you can afford the payment, make it. The longer your wait to pay it down, the higher the balance will get and the more time it will take to pay if off. If you absolutely cannot afford all of your debt payments, check with the high-interest rate loans/credit cards first and ask if interest will be charged and if skipping a payment will affect your credit score. Otherwise, continue to prioritize paying off high-interest debt.
Build a Contingency/Business Continuity Plan
If you need help adapting (adding an online sales channel or marketing to a different target market) or creating a business continuity plan (BCP), I’m offering free consultations to help you get started. If you are ready to get your finances in order, check out my services and set up a complimentary consultation!
I’m wishing you grace, patience, and resilience through these uncertain times, my friend! Let me know how I can help you!