When an economic downturn occurs, there are various steps you can take to protect your business and ensure it survives. This guide outlines your options.
Understand your finances
During an economic downturn, it’s crucial to have a comprehensive understanding of your company’s financial status. This entails knowing your cash reserves and whether they are sufficient to maintain operations during challenging times.
To achieve this, you should prepare a cash flow projection that shows how much money you anticipate receiving and spending. Being able to anticipate and track changes in your cash position will allow you to plan for future cash requirements and make informed decisions.
Continuously reviewing your company’s finances and budget during a downturn is essential. You should keep a close eye on the performance of your activities and make adjustments to your forecasts as needed.
Additionally, an accountant can provide valuable assistance in managing your cash flow, including preparing a cash flow forecast, guiding you through the process, or providing a critical evaluation of your existing forecast and the assumptions behind it.
Review costs
During challenging economic conditions. It can be an excellent opportunity to analyse your expenses and identify areas where you can reduce costs.
To achieve this, you should consider all your costs, including raw materials, energy supplies, software and magazine subscriptions, travel expenses, insurance, internet and phone bills.
Once you have identified your expenses, you can start looking for ways to cut those costs. This may include contacting suppliers and negotiating a better deal, using business service price comparison websites to find cheaper prices, cancelling unnecessary subscriptions, and switching from physical to online meetings.
By taking these steps to reduce costs, you can potentially save a significant amount of money, which can help your business weather the challenging economic conditions and emerge stronger in the long run.
Focus on key performance indicators
Key performance indicators (KPIs) are a valuable tool for monitoring your business’s success, especially during challenging economic times.
By tracking your performance against predetermined metrics. You can ensure that your operations stay on course and that you achieve the success you desire. Setting targets that are closely linked to your business goals and objectives can also help you identify potential issues before they become major problems.
KPIs can be financial or non-financial and can cover a broad range of areas, including increasing the number of customers, improving sales revenue, boosting customer satisfaction levels, and enhancing profitability. By monitoring these critical areas, you can gain insight into where you are succeeding and where you need to focus your efforts to achieve your desired outcomes.
Putting up prices
During an economic downturn, it might seem counterintuitive to raise your prices; however, it can be one way to safeguard your business.
There are ways to implement price increases without alienating your customer base. One strategy is to segment your clients and determine which are less likely to be sensitive to price increases. These could be individuals with significant disposable income or new customers who have not yet developed a strong price sensitivity.
Another critical factor is honesty and transparency with your customers about the reason for price increases. By being open about the reasons behind the price rise. You can encourage customer loyalty, particularly if you emphasize factors that they particularly appreciate, such as exceptional customer service, added-value products or services, and fast or free delivery.
It’s also important to note that raising prices should be considered carefully and strategically. A steep price hike could lead to a loss of customers, and it’s essential to assess the potential risks and benefits before making any significant changes to your pricing strategy.
Supporting employees
During difficult economic times, it’s common for employees to experience anxiety and worry, which can lead to decreased productivity and other issues that could negatively impact your business.
One strategy to mitigate these concerns is to be honest and transparent with your staff about any cost-cutting measures that need to be taken due to the economic situation. By keeping your employees informed, you can help them understand the reasons behind any changes and alleviate any undue stress.
It’s also important to involve your staff in decision-making processes and to listen to their feedback and ideas. By encouraging employee participation. You can tap into their knowledge and expertise and identify potential solutions that may not have been considered otherwise.
By taking these steps to address employee concerns and involve them in the decision-making process. You can help maintain employee morale and productivity, even during challenging economic times. This can ultimately benefit your business by allowing you to continue operating at a high level, even in the face of adversity.
Stay on top of invoices
During challenging economic times. It’s especially critical to ensure you’re receiving payment for your products or services in a timely manner. Unpaid invoices can have a significant negative impact on your cash flow and may even jeopardize the survival of your business.
To mitigate this risk, it’s essential to monitor your customer invoices closely and ensure you’re being paid promptly. If payment is not received on time, it’s important to take steps to get the bill settled by contacting the customer and asking why payment has not been made.
Additionally, there are several steps you can take to ensure prompt payment. For example, it’s crucial to issue accurate invoices that contain all the necessary information. Such as the invoice number, date, and itemized charges. You should also make it easy for customers to pay by offering various payment options, such as online payment or automated recurring billing.
Maintaining strong and friendly relationships with your clients is also crucial to ensuring timely payment. By building a positive relationship with your clients, you can improve communication and reduce the likelihood of payment delays.
Overall, taking proactive steps to monitor customer invoices and encourage prompt payment can help protect your business during challenging economic times and ensure that you maintain a healthy cash flow.
Access business funding and support
During difficult economic times, finding business finance can be challenging, particularly with rising interest rates. However, there are still options available to you.
Traditional banks and alternative lenders may still provide funding during tough times. Moreover, there are grants and support schemes run by the Government, local councils. Other organizations that can assist businesses in dealing with an economic downturn.
Government initiatives, such as the Energy Bill Relief Scheme. Which offers a discount on energy bills, and the Recovery Loan Scheme. Which provides Government-backed loans of up to £2m to small businesses, are some examples of such schemes.
It is advisable to check the Government support services and your local council website for details of local funding and support schemes. You can also speak to your accountant who may be able to direct you to useful initiatives. Our guide on accessing small business funding offers more detailed advice on the subject.
In addition, business membership and networking groups can be useful in finding solutions to the challenges of tough economic times. Meeting other founders to make connections and share ideas can be beneficial.
The Account- Ease website contains several articles with useful advice on managing your business.
How Account-Ease can help
If you need assistance with your business, Account-Ease Accountants can provide valuable guidance. Our team of experts specializes in areas such as tax, accounting, bookkeeping, and payroll. Additionally, we can put you in touch with other professionals we collaborate with, both in your local area and nationwide.
Get in touch with us today to learn more about the range of services we offer and to schedule a complimentary video or in-person consultation.
