We are all experiencing a historic moment in time together. There is a lot of uncertainty, misinformation, and worry in the air at the moment which creates fear about essential resources like income. If you are a business owner, chances are you have no choice but to cut costs, lay off employees, or possibly close down your business. As business slows down all over the world, the economy takes a hit as well. Before you decide to take drastic measures like closing down shop and letting go some of your best employees, here are a few ways you can adjust your business plan for a possible recession or a slow economy.
1. Cut Unnecessary Expenses
As things begin to shift and your company's revenue is put at risk, it's time to get serious about unnecessary spending. Every business owner should be able to point out services they pay for which are not essential to the overall function of the company. Knowing the difference between what is optional and what is absolutely needed for profit growth is necessary. Re-evaluate things like:
- Office supplies
- Travels
- Office food expenses
- Tools that are rarely being used within the organization
- Events
2. Seek More Opportunities
Economic hardships don't just take a toll on business owners, they also affect the consumer. When your buyer gets hit economically, now their problem becomes your problem as well. This is why your revenue shouldn't rely on only a few customers. According to an article written by Dinah W. Brin over at Weebly, if one customer accounts for at least 10 percent of revenue, or your five largest customers represent 25 percent or more, your business has "high customer concentration". In other words, don't put all your eggs in one basket and work on diversifying your portfolio so all your revenue doesn't come from only a few or one big client.
3. Emergency Fund
General wisdom about personal finances applies to business as well. Economic recessions, natural disasters, and national emergencies are usually unforeseen events. Due to the spontaneous nature of life, you should always be prepared with an emergency savings fund to help you pull through. Create a separate savings account for your business so you're not mixing funds and are less tempted to use that money for standard expenses. Your ideal balance will depend on the size of your business, its revenue, and its margins. If you have enough to cover three to six months worth of expenses then you're off to a good start.
4. Keep Inventory to a Minimum
Don't worry about not having the usual amount of inventory. When everyone is struggling financially, demand is usually at its lowest. Try to only purchase merchandise and replenish inventory as you see it best. If you notice a product is selling at a rapid rate and you're constantly running low, focus on replenishing for that product and so on. The last thing you want is to have inventory sitting on a shelf for months without being able to turn it into a profit.
5. Relieve your Debt
Try to pay off as much debt as you can while you have the money. Pay off as many invoices from vendors as you can and try to collect from those who owe you as well. You also want to tackle any high-interest loans you may have and get those out of the way. Paying off much of your credit card debt is also important because in the case of an emergency you'll have more credit available for use.