Ten Economic Climate-Change Tips for Small-Business Owners
By Kendra Songer
With the word recession hanging in the air, small-business owners are a little nervous. They start poring over financials and questioning every decision and every purchase. But what exactly is the right response for a small business during uncertain economic times?
1. Relax. First, all recessions are temporary. Not only does the economy always recover, consumers continue spending even during down times. Many small businesses continue doing business, and some even grow during tough times.
2. Ask employees for help. Employees notice employers’ attitudes and actions even if nothing has been said. Having a frank discussion with employees will not only put a stop to any rumors, but it may generate helpful ideas as well. If the company is experiencing higher costs, then tell the employees and offer alternatives. To avoid layoffs, are they willing to cut back on hours? Are they willing to work in a tighter space so that the company can move to a smaller office? Employees may also be able to offer ideas on how to run their department more efficiently.
3. Make sure there’s enough cash flow. Everyone has heard this mantra, but it’s important enough to bear repeating. Cash flow can make or break a business. Make sure there is enough cash to pay expenses if revenue drops.
4. Increase the cash flow. This is easier for companies still in the black. The time to apply for loans or lines of credit is before a cash crunch. With interest rates dropping, try refinancing existing loans. A downturn in the economy can be a good time to try renegotiating with vendors. For those already suffering, it can be tempting to cut prices to keep money coming in; but be sure it won’t harm the business in the long term. Prices can always be lowered, but they are harder to raise.
5. Trim spending. Increase cash flow by cutting costs. Some solutions seem obvious—laying off employees, switching to subcontractors, outsourcing—but there are other options to consider. Cutting costs should be a temporary solution, so be sure that doing so won’t affect business in the long term (e.g., don’t cut costs on preventative maintenance of necessary equipment). If cutting costs is necessary, consider consolidating offices, dismissing underperforming workers, and so on.
6. Keep marketing. Many businesses cut advertising costs first, but advertising is needed to generate new clients. Reevaluate where the money is being spent. Cut where the results are few, and don’t forget to network. Networking is a great way to get the word out—just don’t be obnoxious.
7. Look for opportunities. This is a good time to find employees. Some great people are out of work or nervous about their companies’ futures. Look into sharing rent or equipment with other companies. Join a group advisory board to see how other small-business owners are handling the crunch.
8. Get tough with Accounts Receivable. Don’t let invoices go unpaid, and get tougher with nonpaying clients. Consider switching to online billing services. Know your customers—don’t extend credit to a company on the edge.
9. Beef up customer service. It’s easier to keep existing clients than it is to generate new ones. Practice customer loyalty: offer discounts, keep communication open, and don’t forget follow-up. When times are tough, customers may want to purchase in smaller quantities. Find ways to handle shorter runs or lead times. Can the product be broken up into smaller, more affordable pieces?
10. Be patient (and don’t panic). Making changes will improve the company, but it can take three to six months to see the effects. Running a successful business is as much about positive attitude and daily decisions as it is about the economy. Determination and hard work can help find creative solutions during tough times.