We are in the midst of one of the longest running periods of growth in the U.S. economy. In fact, we are currently in the midst of one of the longest business expansion cycles ever.
Business runs in cycles, for any business owner or CEO who has been in business for just 10 years or less, you may have never experienced a downturn in the economy. And unfortunately, this leaves most businesses vulnerable, unless you take some action to protect yourself.
No question that the market has shifted. We have seen these forces at work for a number of years, but it is now coming into clearer focus. A rapid but measured approach—simultaneously defensive and offensive—to tackling the challenges posed by a downturn will help you not only survive this economic downturn, but it will help you take advantage of market shifts, and seize advantage in a downturn.
1. Reduce Your Debt
Do all you can to ensure your debt is low enough that if you lose some clients, you can still survive. Pay off all credit card debt if you have any. Keep it at zero. Pay the entire balance monthly and pay down your line of credit as much as you can. This way, if the market falters, you are not at risk.
2. Build Your Cash Reserves
As they say, cash is king. It’s always good to have an emergency fund, but even more so when the economy takes a turn for the worst. Ensure your cash flow is in great shape so if, for some reason, you find yourself a little tight with cash, you have a buffer
3. Keep Your Credit (Both Personal and Business) in Good Shape
If you have great credit and find yourself in need of some extra credit (as a last resort) during an economic downturn, it will be easier to secure an extension on your line of credit. It will also be easy to get a short-term loan if your credit is in good shape. The last thing you want to have to do is use your credit card as a source of funds during an economic downturn.
4. Do Not Be Reliant on Just One Big Customer
This is the time to diversify your client base, if you haven’t already. What if you lost your biggest and best client? Where would you be? Now is the time to ensure you have a great variety of clients and a decent number of clients, so if you lose 10 or 20% of them, you still have positive cash flow.
5. Make the Most of Your Current Customers
Make the most of your current customer relationships and keep them extremely happy! If you do nothing else but go over and above for current customers to keep them coming back, they’ll remember to refer you more business. This is the best kind of marketing – having your existing clients spread the good word about your amazing service level and loyalty.
So while it is important to diversify clients, it is equally important to keep your core customers very happy. Make sure you do not increase your number of clients to the point where you can no longer keep them all extremely happy.
6. Build Service Contracts with Future Work
Structure your service contracts in a way that ensures you have future work already built into the pipeline. A great strategy for a sustainable business is to secure ongoing work, creating recurring revenue, rather than project work. If you secure contracts for recurring revenue, or retainer relationships, then you’ll have a buffer if one-off work dries up. And, as mentioned above, you will be much more likely to secure long-term work if your current customers are extremely happy.
7. Look After Your Team
If you look after your team, your team will look after you. Right now, I have found that every company I work with is having a hard time finding skilled workers. So what happens in an economic downturn? Layoffs. Layoffs happen in order to cut costs. But then you lose the skilled workers you worked so hard to find.
So how can you work together with your team to cut costs? Perhaps everyone agrees to take Fridays off unpaid instead of one person getting laid off. Get creative. Ask them what they are willing to do. If you are a great leader, they will often work with you in order to keep working for you.
8. Focus on Your Core Competencies
Go back to basics and focus on your core competencies in your business. It’s better to focus on one thing and do that one thing extremely well than to try to do many things at just an average level. In a difficult economic period, we promise more than we should to clients, in order to ensure a positive cash flow, and then end up either getting a job that’s not profitable, or can’t complete it with the quality you wish you could. Keep doing what you are great at, and you will get more jobs as a result.
9. Measure the Results of Your Marketing
Measure your marketing results now so you know what works, and then resist the urge to cut back on marketing. If you have done a great job with your marketing, and have a sound marketing plan, this is not the time to cut it.
If you haven’t taken the time to measure the results of your marketing, so you understand what strategies and tactics are working best for you, now is the time to do this so you can keep counting on great marketing to drive business in a worsening economy. Otherwise, an economic downturn seems like the perfect time to cut marketing costs – which could end up hurting your business further.
10. Inventory Control and Diversification
If you rely on supplies of any kind, now is the time (during good economic conditions) to ensure you have great control of your inventory and diversified suppliers.
First, ensure you have great inventory control and, if you need to, you have the option to cut it back slightly and still have everything you need for your clients. And it’s best to be able to order from multiple suppliers, not just one. When you rely on one supplier and they suddenly can’t supply you with goods you need in order for you to do business, this can choke your firm. Look for other sources and build a relationship with multiple suppliers so that if one stops shipping to you, you are not stuck.
Source: Thrive Business Strategies, May 2019