The most difficult times for small businesses are when it is difficult to predict what is coming, but the storm clouds appear to be gathering. Australian small businesses are already going through tough times and, with global economic conditions in a worrying state, a recession is not out of the question.
Whether recession becomes a reality or not, it is a good time to batten down the hatches and come up with a survival strategy that will see your business through even the toughest of times. Many of the steps you need to take do make good business sense whatever the prevailing business conditions. Revisiting these will set your business up to be even more successful going forward.
Put Your Finances Under the Microscope
Keeping your finances above water during severe conditions is the only way your business will survive. As such, you need to keep tight control of your finances by diligently monitoring expenses, revenues, cash flows, and profitability.
What are the most critical financial metrics to watch and proactively manage in a slowing business environment? With cash flow the lifeblood of your business, a lot of your attention needs to go into maintaining a healthy accounts receivables book. You need to monitor this on a client-by-client basis because, at times like this, one nonpayment or delayed payment could have a domino effect on your cash flows.
It also makes good business sense to put in place financing alternatives to shore up your finances in the event of a cash flow set back. Invoice finance companies offer a valuable service in that you can prepare for potential cash flow issues in advance.
You have two options: you can set up an invoice discounting arrangement or you could set up an invoice factoring service.
The former, invoice discounting, allows you to hand over invoices on a case-by-case basis. The invoice finance company will extend 95% of the invoice’s value to you upfront, with the remainder, less the invoice company’s fee, paid when the customer settles the invoice. Invoice discounting is a useful as-and-when service to have. It is worth identifying an invoice company that meets your needs and then setting up a relationship before you need to draw on their financing services.
The other alternative, invoice factoring, hands over the responsibility of ensuring the payment of invoices to the invoice finance company, which takes over your invoicing process in its entirety. Outsourcing this to an invoice financer could provide you with welcome relief if you want to put all your energy into managing the business strategically and operationally during the downturn.
Knowing you have a robust accounts receivables plan in place, you need to move onto interrogating your expenses. See where you can cut back and where you need to spend still to keep the business in good operational shape. At these times, any additional expense needs to be considered very carefully and matched against the extra revenues it will potentially bring in.
Go Back to Business Strategy Basics
Revisiting and realigning your business strategy at this time will also be a critical enabler during slow business conditions. You need to ask yourself, are you diversified enough to withstand a slowdown in the industry within you operate? Do you need to consider other market opportunities that may add a different stream of revenue?
As a small business, you have all the advantages of being nimble and agile and can use these qualities to exploit business opportunities that could potentially bolster your business. You also have the advantage of being able to make decisions quickly because you don’t have the decision-making red tape of some of your bigger competitors.
Cleverly thought through, sensible diversification, either in the product range, geographically and, even better, internationally, would give you different sources of revenue. If one source of income came under pressure, others could help the company remain profitable. However, it’s important not to put the company at risk by trying to spread the business too widely.
Stand Out from the Competition
There is no other time where it is more important to stand out from the competition than now. As a business, you can do this in two ways: by providing exceptional customer service and continuing to market your business actively. You need to keep in more regular contact with your customers. If you are in a position to have one-on-one relationships with them, take advantage of that connection. Otherwise, communicate more regularly with them via email or through social media to keep your business top of mind. While many businesses cut back on marketing during tough times, the opposite is true. It is worth continuing to build your presence through cost-effective social media and online marketing.
Remember, bad times don’t last forever, and that severe economic conditions call on you to draw on the resilience and courage you needed when you first started. Also, it is the businesses that make it through the tough times that go on to be the best performers.