Here are some tips to help keep your business afloat.
While the past decade has logged a period of unprecedented economic growth, the events of 2020 have rattled both global markets and consumer confidence.
While a prolonged economic downturn is a fate no investor prefers to endure, small business owners may have more to worry about. During the 2008 financial crisis, thousands of businesses were forced to close down their businesses for good. Or, their liabilities so heavily outweighed their assets by the time the economy turned, they were unable to ever recover.
Because owning a business is such a personal endeavor and source of pride, losing one isn’t just devastating financially, but personally, as well. Luckily, steps can be taken to protect what you’ve built and batten down the hatches to make it through.
So how do you prepare your business for an economic downturn?
1) Obtain a Business Valuation: Your business is an asset, just like a piece of real estate or your investment portfolio. As an asset, you’ll want to periodically check its value to determine your net worth and gauge your spending and saving power for the future.
In the event the economy turns, having a business valuation may make it easier for you to (1) obtain a loan for the business, (2) acquire an investor or partner, (3) track how the economy is affecting growth, (4) sell your business, or (5) include it in your estate plan. Obtain a valuation before the market turns and negatively affects your revenue stream.
2) Maintain Enough Liquidity and Keep a Cash Reserve: Of course, we are not suggesting you stuff cash under your mattress or bury it in the backyard. Maintaining liquidity simply means allocating a percentage of your funds to a space where you can easily exchange them for cash should you run into an emergency. In some cases, this could mean stocks, since they are relatively easily bought and sold.
However, in the extreme event that the US markets close down, you will still want to have some cash on hand. Liquidity and cash reserves are your safety net should a tragedy like 9/11, a natural disaster, or market closures strike. Business owners who take income quarterly via dividends or only pay themselves on a periodic basis may want to consider frontloading their withdrawals in order to have this safety net in place.
3) Improve Your Budget: The time to make large business purchases is not when canaries in the coal mine alert of possible downturn. These are the times to revisit your budget and even consider where you can cut costs.
For example, if you have been with a vendor for a long time, consider asking for loyalty pricing in exchange for continued support. The same goes for your banking institution. If you have remained with the same bank or carried the same credit card for an extended period of time, you may ask for a better interest rate or see if recurring fees could be waived.
4) Capitalize on Current Business: Bringing in new business will always be imperative to long-term success, but retaining current clients can help keep your numbers above the break-even line in hard times. Think of what you can do as a business owner to prioritize your loyal customers and nurture their support in any economic climate.
5) Don’t Stop Marketing: In looking to cut costs, you may be inclined to look at your marketing budget first. After all, marketing can sometimes be seen as a “soft expense” whose return is neither guaranteed nor physically tangible the way, say, a product is.
However, staying in the public eye is essential. You always want to have options in your pipeline should a current client or customer base suddenly discontinue supporting your business. With so many cost-friendly ways to promote your business, such as email and social media marketing, there is no good reason to cease marketing altogether.
Ready to learn how to prepare your business for economic uncertainty? We specialize in working with business owners around the globe, and as business owners ourselves, we know first-hand how unsettling a downturn can be. Schedule a complimentary discovery call with one of our planners today to prepare for whatever tomorrow could throw your way.