The time to hedge your business of recession is before the economy starts to fall. Later, it may be too late to turn the ship around. Careful planning and taking specific steps now can help you prepare your small business for future downturns and market changes.
Get a grip on your cash flow
Many companies fail because of cash flow problems. It is important to know your numbers as they currently stand and create a profit plan for the future. Keep an eye on what happens to your cash flow in different situations. Build good habits. Make sure your customers or clients pay you on time. Create a system to keep accounts receivable under control. Build a cash cushion, if possible.
Develop multiple revenue streams
Create different ways to get revenue with a wide range of price points. This can help you maintain your business income, no matter what your finances do. The idea is not to get caught with all your eggs in one basket. Having a variety of revenue streams can help your business stay flexible and capable of enduring a recession.
Budget expenditures according to revenue
As a financial planning strategy, instead of creating a specific amount in the budget for marketing and other variable expenses, set these budget lines as percentages of revenue. This method will automatically increase your marketing when sales increase and help you control your spending if it decreases. Unlike fixed expenses such as building rent, variable costs can be linked to income.
Arrange financing before you need it
Consider opening a credit line that can be used as a cash cushion for your business. Use it only when you really need it to keep costs down. Your company will only charge interest and fees on the amount you borrow. It is better to find financing before you are in a cash crisis. Lenders are likely to tighten standards when a recession begins.
Build existing customer relationships
Instead of spending a lot of money to attract new customers, invest in relationships with those you have. Give your current customers the best experience and results. They will want to continue doing business with you and will serve as a source of new customers. Word of mouth is a convenient, inexpensive method of advertising.
Be prepared to diversify
Prepare to take your business in a different direction if a major change in the economy occurs. You may need to switch to a similar product or service with greater demand at a different time. Think about “think about”; scenarios and new industries you can enter into if the economic environment changes in a recession.
Position your business for success before the economy starts to slow down. Make all the necessary adjustments to take advantage of opportunities that come with a recession. Our knowledgeable agent can help you ensure that you have the business insurance coverage you need to protect your small business before and during a recession.