How Your Small Business Can Survive a Recession?
Any business involves risk. Lacking consumer confidence and less amount of sales can be threat to any business. Although any corporation, partnership, limited partnership or limited liability companies can overcome any recession, but the small businesses are extremely vulnerable. According to the federal government’s Small Business Administration, only about half of the small businesses last longer for more than five years. Small businesses operate on a tightly controlled cash flow. Most of the time, they don’t reserve any large cash resources to fight the economic downturn.
How to Recession-Proof Small Business?
The question small business owners often ask, “How small businesses can survive an economic collapse” To survive during an economic downturn or a global pandemic, you must adopt and implement some strategies in advance which can help to recession-proof your small business. From protecting your cash flow to building customer base, these small business strategies can help you to survive and even thrive in tough economic times or pandemic like coronavirus.
Small businesses are already on life support, facing difficulties to survive during the COVID-19 pandemic. Will small businesses survive the COVID-19 recession? Well! During an economic recession, small businesses show remarkable flexibility and find creative ways to survive a downturn. Learn how small businesses can survive the coronavirus outbreak.
Protect Your Cash Flow
Prepare for a long recession, any recession lasts longer than expected and it gets worse over time. So, do not count on its recovery. Consider that it will last at least a year. The secret to surviving a recession is cash flow. Cash flow is the lifeblood of any business. To keep running your business, cash must continue in-flowing and out-flowing. You need to earn more than your expenses to hold the existence of your business. Keep the continuous cash flowing in is hard. Payout cash later and receive cash sooner is the way to protect your cash flow. The main way to do this
Reduce and slow down cash outflows.
Increase and speed up the cash inflows.
Adjust Your Business Position for the Recession.
Make Your Team More Productive.
First of all, here’s how you can reduce and slow down cash outflows.
1. Reduce And Slow Down Outflows Of Cash
This first step is to find out that if anything can be done to reduce your expenses. Reduce your monthly cash outflows. Reduce your monthly rent. Sign a longer-term lease if you can get it for a lower rent.
Get a discount on utilities like water, power, internet, and phones. Looking for vendors who offer big discount. There are so many vendors available who offer big discounts to their new customers. Once you know how much you can save by switching, call your current vendors.
Request your vendors for better terms. Ask if you can get some more days to pay your payable terms later. For example, you may be able to get 45-day terms instead of 30-day terms. Having cash on hand for an extra 15 days may be crucial in your survival.
Cut wasteful discretionary spending. If possible cut the newspaper and magazine subscriptions. Besides, stop wasting your money on productivity-boosting expenses like the coffee machine or a well-stocked soda fridge.
Lease rather than buy. If you need electronic accessories like computers or furniture, I suggest you to lease rather than buying. Buying will cost you more. But, in an economical down market, you need to save more than your expense or cost. In this survival situation, you don’t need luxury accessories and gears.
2. Increase and Speed Up Cash Inflows
After ensuring a minimal expense and cash outflows, focus on how to increase and speed up your cash inflows. There are several ways you can increase and speed up your cash inflows.
Collect receivables sooner. To survive an economic downturn, try to collect your receivables as soon as possible. Offer your customers discounts or pay-off facilities, so they are interested to pay you soon. Ask them to within 10-15 days instead of 30 days by giving them a 2-5% discount.
Don’t lose your customers. Your customers keep your business running. So, provide them their required service at the most effective prices. Express their values to your business. They will also help you to survive your business.
Losing regular, best customers can affect your business. Double-down on your best customers. Hold your best customers. Call, send a card or mail can be helpful to keep a sweet bonding with your best customers. Offer a cup of coffee can help to appreciate their loyalty and love.
3. Adjust Your Business Position for the Recession
You will find a huge difference in the business environment in a recession period and normal years. To survive a recession, you must adjust your business position according to your customers’ needs.
Reduce your inventory costs without sacrificing the quality of goods sold or inconveniencing your customers. Reduce the amount of inventory you are holding and free up much-needed cash.
Look for drop-shipping alternatives to eliminate shipping and warehousing costs. If you have the option to save money by ordering your goods from different suppliers, switch your supplier.
In a recession, consumers need to get more value from their purchased products. If you position your business as a great value they need, you will survive the recession. Look for opportunities to launch your business initiative.
4. Make Your Team More Productive
Big or small! Every business needs employees for running properly. They are an important source of value for the business. Usually, to ensure more productivity, you need more manpower. But, in a survival situation, minimizing labor costs while boosting productivity is a critical question. So, how to ensure productivity in a recession?
If you have to cut employees to your company’s survival, cut once. Ensure the rest of the employees about their jobs so they will not be scared of losing their job too. If they are afraid to lose their job, you won’t get the best results from your employees.
Cutting employees’ salary reduce their productivity too! So, it is better to cut hours. Doing that you’ll save the same amount of cash, but have a better chance of retaining the same level of productivity from your employees. Offer them overtime payment.
Moreover, be open and friendly to make your employee more productive. Encourage and motivate them to work together more efficiently to survive the recession.
Yes, keep running your small business during a recession is hard but surviving is not impossible. You can’t make your business fully recession-proof. But by controlling your cash flow, Adjusting your business position for the recession and making your team more productive may help you to survive a recession and global pandemic.
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