In times of recession, small businesses need to take a range of positive actions to minimize costs and maintain sales. Some of these expedients require involve some difficult decisions, but are a route to survival. Ultimately, a leaner, fitter business will emerge, all the more competitive for having weathered the storm. Your only question will be ‘why didn’t I do these things sooner?’
With the threat of recession looming (or even upon us?), many businesses are asking themselves how they can survive in the face of declining customer spend, tighter credit periods and the general doom and gloom that comes with an economic downturn.
Naturally, the answer will depend on your business model, B2B, B2C, and so on. But, in principle, for the entrepreneur, the 'cash last' approach should always be the first priority, either in a start up situation or for a growing business.
The following are my tried and tested methods for tightening the company belt:
1. Sweat your assets! Only replace hardware when you absolutely need to. Even if items are fully depreciated, as long as they function, keep them.
2. Keep stock moving. Even if you have to cut price, the worst thing you can do is let stock become obsolete.
3. Talk to creditors and free up cashflow. Arranging or extending credit can free up a lot of cash and this can help with…
4. Tactical, below the line marketing. Despite recessionary concerns, keep up your marketing activity. Simple, price-based offers on cheap leaflets distributed locally or other cost-effective methods are often adequate for keeping you on your customers’ radar. Businesses still need to spend and consumers still need to buy - sometimes as a tonic to help deal with the recession.
5. Build up a cash reserve. Arrange short-term finance options early. The last thing you want is to run out of cash so put facilities in place from a range of affordable sources - even if they are a little dearer than longer-term debt, better to have the option than to go 'cap in hand to the bank'.
6. Work on a skeleton crew. If necessary, look to reduce staff hours to those that are core to your business. It may be unpopular but hopefully some of your staff will see it as a short-term measure to ensure longer-term survival and growth.
7. Look to reduce general establishment costs: Use recharged print cartridges, reduce call charges using SKYPE, shop around for cheaper substitutes on key materials - don't be afraid to push your suppliers.
8. Restructure longer-term debt if necessary: lenders are generally happy as long as debt is being serviced and if you’re talking to them, they are reassured of your professional approach to management. A little restructuring is always an option to free up some cash.
9. Where possible, defray overheads. Let out spare office capacity to other businesses, consider joint advertising with partner businesses, share key services and use DIY alternatives for repair and maintenance issues.
10. Longer term, look to move your business model to a lower cost base. By analysing the key costs of the business and the revenue they generate, it is possible to rationalise and focus on core business. Even if it is painful to cut some things out, business is about adapting to the prevailing conditions.
Some of these expedients require you to make some difficult decisions, but it is a route to survival. Ultimately, a leaner, fitter business will emerge, all the more competitive for having weathered the storm. Your only question will be ‘why didn’t I do these things sooner?’
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