Seven Smart Ways to Prepare for an Economic Downturn
America's entrepreneurs look on the bright side of life. According to recent polling from the U.S. Chamber of Commerce, 73 percent of small business owners say they expect their revenues to increase in the next year. However the recent stock market dive, the delay in an interest-rate cut that could have eased up lending, and the upcoming election may take the shine off of their optimistic outlook.
What's more, the pre-existing factors among these negatives have no doubt contributed to reduced consumer spending and feelings of uncertainty — the makings of an economic downturn. In fact, the NFIB's Small Business Uncertainty Index rose from 76 points to 85 points between April and May, its highest reading since November 2020, in the midst of the pandemic and the last Presidential election.
Did you know?
Only 42% of entrepreneurs see themselves as prepared to manage an economic downturn.
Despite these challenges, you can be flexible and proactive in your approach to an ever-changing economic environment with these practical strategies and tactics:
1. Branch out with new revenue streams.
A market in flux is a great time to take some chances by diversifying. For example, if you're a restaurant that opens at 6 p.m. and you're not quite raking it in as you were a few months ago, maybe you can rent your tables out as a co-working facility 9 a.m. to 5 p.m.? Try reaching out to new customer segments with new products or services to generate more diverse revenue.
2. Keep a close eye on cash flow.
Are you retail receipts declining on Saturdays, or after 3 p.m. on weekdays? Don't let patterns that have been slowly emerging for weeks or months catch you by surprise. Track income and expenses daily. Look for patterns you can respond to on the fly. For example, you could lessen the sting of reduced receipts by adjusting staffing or your hours of operation.
3. Get tough on overhead.
Where can you cut some fat? If your suppliers are commanding premium prices, consider teaming up with non-competitive businesses to get bulk rates. Or try to buy in greater volume to get a discount. Incent every department in your firm to come up with at least one money-saving suggestion for its operations.
Did you know?
Small businesses have an average of just 4.2 months of cash reserves on hand.
4. Prepare for that rainy day.
Don't get caught short if your revenue suddenly takes a dip. Improve on that four-month average by having at least six months of operating costs in reserve. You won't be able to do it overnight, but a slow and steady effort can get you there.
5. Don't stop investing in marketing.
It's tempting to cut back on your marketing operation, since it's easy to write it off as a cost center. But don't fall into that trap. Downturns are a fine opportunity to heighten your focus on brand visibility and attracting new customers. Let those feelings of uncertainty motivate you to find new and exciting ways to stay competitive and flexible.
6. Pay attention to your customers.
Get personal with higher levels of customer service; consider instituting or stepping up your loyalty programs. Solicit customer feedback to stay ahead of market demands.
7. Huddle with your best minds.
Your accountant, financial advisor, and business mentors can help you make good choices in hard times. Tap their expertise for short- and long-term downturn planning.
You don't have to lose your optimism to succeed in an uncertain economy — just as long as you stay flexible and you're willing to make adjustments on the fly. In fact, you might come out of a downturn with new and better best practices for growth and prosperity.
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
