To hear the experts tell it, an economic downturn is right around the corner. We can’t predict the future, but we can tell you that downturn or not, it’s never a bad idea to be prepared for uncertain economic times. Markets rise and fall based on a thousand different factors beyond your control, and you never know when you’ll need to weather a decline in your business. Here are some things to think about.
The sky isn’t falling quite yet, so don’t do anything you’ll regret. Most economic depressions and recessions last on the order of months, not years, so it’s not a matter of adapting to a new normal so much as surviving a temporary setback.
Some business owners overreact to falling markets, selling major assets or taking on debt that they don’t need. Don’t be that person. Chances are that the ship will right itself in a year or two, so think about the long-term health of your company before you go shuttering storefronts or taking on big loans to bridge the gap.
Get Your Cash Flow In Order
One thing you can expect from an economic downturn is that cash might start to get tight. Expenses are a constant, but your cash flow isn’t. Make sure you’re sending out invoices on time, reviewing your receivables, and looking for late or overdue payments. Don’t wait until you’re strapped for funds before addressing these lingering issues — they’ll be much harder to deal with later on.
Think about where that cash flow is coming from as well. It might be a good idea to diversify your sources of income, and a good place to start is by diversifying your client base or customer base. If you’re relying on one big client or one specific section of the market and that client or segment suddenly stops spending, you’re in trouble. Look around for different demographics, different companies, and different types of relationships you can foster — hedging your bets will help you avoid the worst of a recession.
Draw Up An Emergency Plan
Start thinking now about what you can afford to cut from your expenses, and in what order. What will you have to stop spending on if you lose 5%, 10%, or 15% or your revenue? What can you afford to live without for a month, six months, or a year? Some of your expenses are non-negotiable and some of them are helping earn you money, but there are probably a few that are non-essential. Taking a mental inventory of your priorities now, rather than when things start to get tight, is a worthwhile exercise.
Do Some Homework On Your Industry
This isn’t the first economic downturn we’ve seen, and it won’t be the last. Do some research into your industry and, if you can, your competitors. Study up on what happened during previous recessions. Who fared well and who didn’t? What did they do differently?
If you have mentors, advisors, or fellow entrepreneurs who have been through similar economic conditions in the past, talk to them. They have firsthand knowledge of the best tactics to take, and they’ll know best how this can affect your specific business.
Talk To Your Current Customers
Keeping your existing customers happy is easier, cheaper, and more efficient than marketing to entirely new people. They’re familiar with your company, they already have a need for what you’re providing, and they’re more open to renewals, repeat purchases, and upsells.
Offering existing customers perks like early access to new items or special discounts is a good way to boost sales, show them how valuable they are, and incentivize them to tell their friends.
The Bottom Line
The bottom line is that the economy is incredibly complex and nearly impossible to predict. Economic factors naturally expand and contract, and you won’t always be able to see the contractions coming.
The best thing you can do is to prepare for them. However rosy or gloomy the forecasts look, it’s never a bad idea to think about what you might do when things go bad — anywhere from falling back on cash reserves to selling out entirely.
Every business is different, and we’re here to help. We can talk through the ins and outs of your particular business, market, and industry with you to give you the best possible advice for the upcoming economic downturn. It might not be next year, but there will be a downturn eventually, and it doesn’t hurt to have the knowledge and tools you need to deal with it in your back pocket.