How Businesses Can Prepare for Economic Downturn
Posted by Ocean Wealth
Business success requires you to be able to pivot with the market. Part of being a business owner, an entrepreneur, or a startup is being ready for the highs and the lows. When the economy takes a turn for the worst, how can you be prepared to ride out the storm? Financial planning for these situations can help your business survive as well as reduce the stress on you brought on by the fear of a recession.
Here are the best ways that you can help your business survive economic downturn.
Tip 1: Save Some Cash
The best financial planning tip we can give is to save for a rainy day. Saving is vital for healthy businesses and personal finance. Conserving cash means that when times are good, you're already preparing for the inevitable dips in the economy. Part of successful saving is recognizing what expenses can be cut back to conserve this safety net further.
Tip 2: Keep Your Cash Flow Healthy
In business, you've got expenses and revenue. Expenses are anything you're paying out, like utilities and employee wages, and revenue is anything generating income, such as inventory sales and contracts. A healthy business has a stable flow of money coming in and out. In times of economic stress, your expenses don't stop going out, so you need to find ways to make sure that revenue is still flowing in.
Tip 3: Diversify Smartly
Diversification is the key to sound financial planning. Consider if you put all your money in real estate, and the market crashes right before your retirement. Diversification is the process of investing your money in a variety of investment types to avoid substantial loss.
It's no different in business. Diversification in business doesn't necessarily mean offering different and unrelated services, though — a mistake often made. For example, think of a farmer who wanted to protect his business by also working as an electrician. However, this harmed his original farming business because he was too tired and confused with both jobs. His customers suffered, and so did his bottom line.
It would've been wise for him to diversify his crops further and grow both potatoes and wheat as well as raise chickens. This way, if wheat has a bad year, the other two sources of income are performing fine.
Diversification is an excellent way to help you survive a slow sectorial period.
Tip 4: Watch Your Inventory
As a business, you may be dealing with physical inventory, whether in a storefront or online. The problem with inventory, though, is that it's "potential" revenue, not actual revenue. Just like outstanding invoices, it's not generating that healthy cash flow. When there are tough economic times, having excess inventory can mean your investment is depreciating while you try to sell it.
Tip 5: Don't Stop Marketing
It can be tempting to cut all marketing initiatives when the economy takes a turn for the worst. Don't do this. Marketing is an essential part of your business, and it's through effective marketing that you'll stay top of mind with your customers. If they don't hear from you, why would they think to buy from you?
Tip 6: Remain Flexible
The best thing you can do to protect your business during an economic downturn is to remain flexible. Things are going to change. The usual source of your revenue may shift. Your marketing methods may be altered. Your expenses may need to be scaled back. The best thing you can do when preparing for economic shifts is to remain flexible instead of committing to a rigid plan.
Many startups and entrepreneurs may dread an economic downturn. Still, there's one positive thing that comes out of situations like this: innovation and ingenuity. When times are tough, we get to see how solid our financial planning has been and make adjustments. We learn new and creative ways to make our business successful.
To prepare for an economic downturn, keep a close eye on the finances of your business all the time. There's no way to be entirely ready for a recession or a dip in the economy. However, by implementing certain precautions early on, it'll be a lot easier for you to weather the storm. If you're looking for help preparing for a recession, our team can help. We understand that creating a plan for the "worst-case" scenario can be stressful. How do you know if you've done everything you can? That is where we come in. Our team wants to help you and your business be as prepared as you can be for whatever the economy throws your way.