The current COVID-19 pandemic has brought a lot of uncertainty to our economy, with many businesses temporarily shuttered and millions of people facing unemployment. If you are a business owner, now is the time to prepare for recession. Read on to learn our best tips for recession-proofing your business so you can weather any economic storm that comes your way.
Keep Customer Service a Priority
The number one way to beat a recession is by offering excellent customer service. Keep communicating with your customers and offering them value, even if it doesn’t immediately result in additional income for you. Invest in your customers, and they in turn will become free marketing and sales for your business by bringing in referrals. If you are known for delivering great service as well as a great product, you are more likely to make it through a recession.
Don’t Stop Marketing
When business slows down, one of the last things you should cut back on is marketing. Now more than ever you need to stay top of mind with your current clients and potential new customers. If your budget is stretched, utilize lower-cost marketing avenues like social media marketing, blogging, webinars, email newsletters, and news releases. These types of online content will give you the best bang for your marketing buck.
Take Control of Your Cash Flow and Save
According to a study done by U.S. Bank, 82% of businesses fail because of cash flow issues. Don’t be part of that 82% – take control of your cash flow now. Reduce expenses and track your money carefully. Know what you can live without and what is essential to running your business. Know your numbers and create a clear plan for how you will get through a downturn in the economy.
Make sure you are getting paid by your customers in a timely manner. Once customers are 30 days past due on their payments, connect with them to make a plan for repayment – don’t wait until 45 or 90 days have passed. You need to keep the money coming in as consistently as you can.
Make a habit of saving. Keep a healthy emergency fund – at least 3-6 months’ expenses – on hand. Have a separate account for your savings so you’re not tempted to use that money for other things. Be diligent about this – save even if it means having to tighten your purse strings in other areas.
Diversify Your Revenue
Don’t be caught with all your eggs in one basket – the bulk of your revenue shouldn’t be dependent on a few clients. If a single client accounts for the top 10% of your business (or your top five clients together represent the top 25% of your business), it’s time to diversify.
Having a variety of ways to bring in revenue at a wide range of price points will help you maintain a more consistent income. For example: having both digital and physical products; offering a recurring membership of some kind; taking part in affiliate marketing; and offering one-on-one consulting. If you run a retail store, make sure your customers have multiple ways to shop – i.e., a physical store and online or phone ordering.
Communicate With Your Bank Early and Often
Talk with your bank right away – don’t let fear or denial keep you from connecting with them. Neither you nor the bank will profit if you go out of business, so talk to them now to negotiate better terms for existing debt and discuss your options for additional loans if they become necessary. In a recession, one of the first things lenders do is tighten their standards for financing. Plus, the lowest-cost financing options often take more time to secure than others. It’s in your best interest to apply sooner rather than later.
Take care of any personal or business credit issues you have. If you don’t already have a separate business credit card, get one now. In the event that you have to start carrying balances temporarily for your business (if customers aren’t paying as quickly, for instance), it will be best to keep that activity off of your personal credit reports.
Pay down current debt as much as you can while the income is still flowing. Start with higher-interest loans, then move on to the rest. The more you lower your current debt, the better position you’ll be in to get additional financing when you need it.
Have a Great Accountant by Your Side
Businesses that are proactive in managing their finances will be set for success in any economy. If you have questions about how to best handle the finances for your business, Wood CPA is here to help. Contact us today at email@example.com