When you switch on the business news and there’s nothing but talk of double dips and credit downgrades, it could be time to think about ways to batten down the hatches and build in barriers against recession within your business. No matter what type of small business you own, there are always steps you can take to ensure that when the grim reaper of insolvency comes knocking within your industry – he’ll walk right past your door.
Here’s how to recession proof your business against a downturn:
- First, understand and monitor your key metrics closer than ever. This means ensuring that your accounting, book keeping and management accounts are feeding you accurate and current stats.
- Stay on top of cash flow. One of the most systematic causes of business failures during a downturn is simply not being able to pay the bills. If you’ve no cash, and you’ve extended every last medium of credit imaginable…you’re probably going out of business.
- Don’t dither in making tough decisions. If you’re slipping into the red, proactively deal with the problem right away rather than hoping that things will improve by themselves. Figure out where considerable cost savings can be made and implement them with steel like resolve. Even if your business isn’t in immediate financial distress, a general cost saving review from time to time is advisable – and during a recession should be mandatory.
- Offer more. During dire times, not only do businesses feel the pinch but customers do too. Wages can often be stagnant and depending on your industry, recession psychology can lead to customers switching to cheaper providers, scaling back their purchases or stopping altogether. Adopt client-centric strategies to provide as much value as possible to your existing customers, and establish a personal rapport with as many of them as possible. This is one area where a smaller, more personable business has the edge over FTSE 100 giants. Some ways to do this are to set-up a newsletter and contact your customers regularly with insightful information, and to develop a strong social media presence.
- Strengthen your debt collection efforts. One of the inevitable consequences of a recession is a rise in bad debts – whether your clients are businesses or individuals, set up a robust debt collection system. Consider shortening the number of days you wait before calling in your payments due – 45 to 90 may be the norm, but consider getting onto your customers once they stray past 30 days without payment.
- Talk. The stronger your professional bonds with stakeholders like bankers, suppliers and customers the more likely you’ll get a bit of a breather if you stumble on to a spot of bother. The personal touch can work wonders – your banker may extend you some extra credit or give the nod to a bridging loan in a 50/50 scenario. Your suppliers may be able to cut you a better deal when it’s time to negotiate a new contract. And your customers are more likely to stick around, and perhaps throw a little more cash into your till now and again.
- Ditch unprofitable customers. Some customers can end up being a real drain on your resources and end up costing you more than you make. Drop contracts and clients that are landing you in the red.