So it’s not about whether it will happen. Instead, it’s about when it will happen.
As a business owner, you should be prepared for adverse circumstances by learning how to make your business recession-proof.
Small businesses in particular very susceptible to recessions because they don’t have the resources to withstand the shock of low consumer demand.
In reality, there is nothing that can make your company avoid the effects of a recession. However, following the steps below can make your business more resilient to the shock of an economic downturn.
These steps can potentially reduce your losses and prevent your company from becoming the next accident statistic.
Let’s take a look at the measures that can help your company survive or maybe thrive in a recession.
Increase your cash flow
No company can do well without sufficient cash flow. A healthy cash flow enables companies of all kinds to carry out their daily core activities.
However, the reality is that your cash flow can be limited when things get tough. Therefore, you have to implement strategies to protect it.
Keep an eye on your claims and make sure they pay you on time. Depending on your circumstances, you should also consider using the timeframe set by your creditors to repay your fees.
You can consider delaying payments that are close to deadlines when cash flow is restricted.
Lease significant assets
Instead of buying certain essential assets, consider leasing them. The advantage of leasing is that you can make relatively small payments over a longer period of time instead of paying a huge amount at once. Paying a large sum at once can affect your cash flow.
Another useful tip is invoice factoring. This includes selling your unpaid bills to a factoring company. The factoring company immediately gives you cash in return for the bills.
The amount you receive is slightly less than the total value of the unpaid bills. This small discount is the factoring company’s fee and can be worth it if you have trouble collecting customer debt.
The factoring company then takes on the task of collecting your customers’ debts. However, this is not your concern as you already have the much needed money.
Strong financial management
Another important point for generating a healthy cash flow is strong financial management. Although financial management has many facets, the use of financial indicators and figures is a crucial tool.
Make sure you calculate and follow these numbers carefully as it is an early warning system that notifies you when something goes wrong.
These numbers are often the best way to predict an impending economic threat. So if you find that the numbers are going in the wrong direction, you can be sure that something is wrong and that you need to act quickly.
You have to follow different numbers like the average profit margin, the current quota, the fast quota, the debt ratio, the interest coverage ratio and several other numbers.
These numbers don’t just show your company’s overall financial health. You can also pinpoint the vulnerabilities so that you can discover the problem and formulate a solution.
For example, the interest coverage ratio helps calculate the ratio of a company’s operating profit to interest expense. A ratio of more than 1 is the ideal number.
However, if the ratio is slowly moving towards 1, this is a sign of problems.
This means that the interest payment consumes more and more of your operating profit. You may soon have problems making payments.
You should create a simple table that shows the movement of these ratios in the form of a diagram. You get a visual representation of your company’s financial health in an easy-to-understand format.
Better inventory management
Inventory management can be challenging because you need to reduce inventory costs without sacrificing product and service quality. There are several questions to consider to carefully improve inventory management.
Are you storing too many articles at the same time?
Are you spending a lot of money on too many slow moving goods that will remain stuck in your warehouse for a long time?
Can you find a better supplier that offers you more discounts and better service?
Can you avoid the costs of storage and transportation by ordering directly from the manufacturer and not through a wholesaler?
You need to take bold steps and think about finding a better supplier, especially in adverse situations. Just because you have been doing business with a particular supplier for a long time does not mean that you can still do without discounts from better suppliers.
If you try to go somewhere else, your current supplier may offer to negotiate better terms in your favor.
Just like with financial management, you need to follow the numbers for sound inventory management. An important number is the inventory turnover rate.
This shows how long it takes to sell your inventory. You can calculate the inventory turnover rate by dividing the cost of the goods sold by the average inventory.
A higher number indicates that your inventory is selling quickly, while a lower number indicates that you are storing inventory instead of getting rid of it quickly. Follow this number over time to see how fast your inventory is moving.
If you find that this number has just moved in the wrong direction, you will be alerted and can take quick action to prevent the situation from getting out of control.
You can take short-term measures immediately, e.g. B. Offer reasonable discounts on products that don’t sell quickly enough.
Strengthen your core competencies
In some cases, while diversification is a good idea, you need to weigh the relative pros and cons to see if it works for you.
You should expand your product or service offering if you are certain that this will not affect your business. The extras shouldn’t lead to a decline in your core business.
It can be tempting to offer your customers more products and services. However, you should be careful.
Diversification is often a good tactic, but adding more products and services is not the only way to diversify. It is better to be a master of good trading than to be an all-rounder.
You should be careful when adding more products and services to your offer. Make sure your company is able to handle the increased load and has the expertise and resources to do these extras.
Very often, the best way is to focus on some core business activities that are your strength.
You should develop strategies to attract more customers.
Your value proposition should be such that customers are motivated to distance themselves from your competitors to you. Offer your customers an offer they don’t want to miss.
To do this, you need to examine your competitors to determine their strengths and weaknesses. This will give you a better idea of how you can improve your products and services to attract more customers.
Do not hesitate to use the tactic that has made your competitors successful.
But you shouldn’t be satisfied and complacent by emulating your competitors. Think about how to build and innovate on these tactics.
One of the best ways to beat the competition is excellent customer service.
Do your best to involve your customers as politely as possible so that they stay with you and even say a good word about you. This is an excellent way to take advantage of free advertising.
You should strive not only to meet customer expectations, but to exceed them. If you can keep your customers happy, they can even become your unpaid salespeople and help your business grow.
Your goal should be to get as many customers as possible when things are going well. A broad customer base is much better than a limited number of customers.
If your customer base is small, your company will suffer even if you lose some of them. With many customers you expand the safety net for your company.
Even if some customers left due to the precarious situation, your company would not falter.
Attention to existing customers
While you focus on attracting new customers, you shouldn’t lose sight of your loyal customers. These customers are valuable because they represent significant sales both now and in the future.
The reason they are so lucrative is that your company will earn a lot from them in the future – if you can keep them at all.
Acquiring new customers, on the other hand, requires considerable expenses for marketing and sales campaigns. The best sales prospects are often your existing customers.
You can try different tactics to tempt them to buy more of you. For example, you can include a reward program that benefits loyalty.
Whenever you market a great new product or service, you should first address your old customers. You are already interested in your business and will therefore most likely buy from you.
Don’t reduce your marketing budget
In economically difficult times, entrepreneurs are constantly looking for ways to reduce their expenses. Your marketing budgets are often impacted because the underlying assumption is that this will not affect your ability to perform core activities.
However, in difficult economic times, you need to maximize your marketing efforts to attract consumers to your business.
You need to be smart and consider the best ways to get the best results. Don’t just start cold calls randomly. Instead, do your research so you can discover consumers and businesses that can benefit your business.
Keep good credit
It is much more difficult to get credit in recessions. Ironically, loans run out at a time when you need them most.
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However, this is the difficult reality of credit during the economic downturn. Therefore, you need to maintain a good credit rating so that you have a better chance of getting limited available credit.
This is easier said than done because credit ratings are going downhill quickly due to difficult circumstances.
You should therefore be careful and take all possible measures to ensure your creditworthiness. In recessions, it is more important than ever to have access to quick cash on credit.
It can be the difference between survival and liquidation for your company. However, this is possible with a good credit rating.
It’s not just financial institutions that take a closer look at your creditworthiness during an economic downturn. Suppliers and suppliers are also very picky when it comes to creditworthiness, since nobody wants to offer goods and services that are not fully paid for.
Therefore, your credit rating is important not only for loans, but also for business.
By learning how to make your business recession-proof using the steps outlined above, you can weather the storm and survive the recession with a strong note.
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Preparing for a recession should not be too far from your normal business operations, provided that you run your business properly. However, if you focus on certain areas, you can survive a recession storm and remain competitive while other companies are struggling or completely collapse.
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