Periods of financial insecurity can be troubling for anyone, but especially for passionate entrepreneurs owning and operating a small business. For many companies, turning a profit is the primary purpose, and during periods of economic turmoil, that can be extremely difficult. However, from customers buying fewer products due to their finances to increased payments or bills, it’s important to keep steady and make sure you have a plan for the future.
As businesses of all sizes from across the globe continue to look for new ways to rise above the competition during these challenging times, it can be exhausting and overwhelming for entrepreneurs. That’s why in this article, we decided to take a “back to basics” approach and help any struggling businesses take a step back and evaluate their current circumstances.
Here are five financial tips for businesses during an economic downturn to help them ride it out or even thrive.
Know what resources you have available
During a slower period or one of less financial stability, it’s always important to know what options you have at your disposal should you require assistance. Although ideally, you wouldn’t have to tap into any of these resources or possibilities, having that information is crucial should any situation ever arise. There are a few popular ways that small businesses have been able to weather economic downturns:
- The Paycheck Protection Program (PPP) was “implemented by the Small Business Administration with support from the Department of the Treasury.” Although these loans come with certain restrictions, meaning you typically can only use the money to cover things such as rent, utilities, or employee salaries, they are offered to a wide variety of businesses and often come with either generous payment plans, or in some cases, options for loan forgiveness.
- Depending on the size of your business, you can evaluate what personal assets you might be able to leverage to fund your business. However, many small business owners may end up overlapping their personal and business finances too much and cause issues down the road, so it’s essential to lay out a plan beforehand. From longer-term strategies, such as putting money into various portfolios or bonds with a consistent return rate, to shorter-term through loan or mortgage refinancing, utilizing your finances can benefit your business when done appropriately.
- Crowdfunding has been successful for many different organizations, but it’s crucial to know which crowdfunding type is best for your business. Because “by 2025, the crowdfunding market will be worth $300 billion,” there’s a lot of capital to be gained through this method, and operating in the right space for your business could be very financially beneficial.
- Be flexible and willing to make adjustments to your operations when necessary by taking feedback from your crew. Maybe it’s time to try out the latest workflow technology or implement organizational methods to monitor your spending better. Talk with and listen to your employees, and be cognizant and understanding of their needs during this time. By accommodating your team’s needs, you’ll have a better chance to keep morale levels high, leading to an increasing inefficiency. Who knows? You might find that all of this thinking on your feet will lead to a healthier work environment filled with innovative changes from your employees. Remember that it’s not always up to you to keep the ship afloat.
Put your customers first.
Customer relationships are key to the long-term success of any business, and these become even more crucial during tumultuous periods. According to Bain & Company, “a 5% increase in customer retention produces more than a 25% increase in profit.” This is simply because returning customers typically purchase periods, moreover, and your operating costs to serve them begin to decline.
A great place to start is by implementing customer feedback. No one knows your product or service better than those who pay for it. Prioritizing what customers care about the most regarding your product or service will only help create a happier customer in the long run. Don’t hesitate to do some trial and error here. The great thing about customer feedback is you’ll know what’s not working just as much as what is.
Since you are already opening the door for customer feedback, why not make it an even more personal experience. Personalization has proven to be another large factor in people’s shopping habits. An Epsilon study revealed that “80% of respondents [indicated] they are more likely to do business with a company if it offers personalized experiences and 90% [indicated] that they find personalization appealing.” The main reason to personalize is to build a relationship with your customers. If they are happy with you and your products, the more likely they are not only to return but to spread the word for you. Customer loyalty programs are a great way to both develop a relationship with customers and, at the same time, reward them for completing business transactions with you. Although rewards can vary, offering them the ability to gain from their interactions with your operation can help them feel engaged and rewarded.
Make your finances as simple as possible.
Keeping your money management as easy to deal with as possible during a complex financial time can help you reduce any financial conflicts you may have to worry about. Cash flow is one of the most important aspects of your business and, in many ways, gives you additional insight into how your business is performing as opposed to simply looking at profit. Taking a more in-depth look at the money coming in and going out can give you a better picture of actual business health than profit, which is an accounting concept, not actual currency.
Keeping your finances as simple as possible is crucial for small businesses to fare an economic downturn successfully. In an article from The Hartford, a study from U.S. Bank shows that “82 percent of businesses fail due to cash flow mismanagement.” Seeing as cash flow is what keeps the lights on, not your profit margin, you must keep a close eye on your money. Use a money tracking app, a detailed spreadsheet, or even a list of necessary expenses. Are you spending enough on a high-quality brand design for your business? Are you spending too much? Check your monthly budget to ensure you have a reasonable amount of funds for your various expenses and can still keep a nest egg set aside to invest in your business’s future. Taking the time to examine and prioritize your cash flow will save you some headaches down the road.
You can also simplify your spending by creating a prioritization list of your business needs. For example, purchasing additional equipment when you have competent ones now may not be in your best interest, but investing time in standing out through brand differentiation might be worth the cost of outsourcing. Can you streamline your workflow to cut back on overtime? Being more efficient might help decrease the general upkeep of your workplace while providing your team with reasonable hours for a healthier work-life balance. Have you been spending more money on morale-boosting lunches, company parties, or other events? As much as your employees might enjoy your methods of appreciation, these extra activities might be an added cost you cannot afford during this hardship. However, you prioritize your company’s finances and consider your cash flow expenses and earnings before making major decisions, especially during a complex time. If you need to make a difficult decision that affects your team, it’s best to discuss it with them beforehand or explain your reasoning to them. A business is only as strong as its employees, regardless of the financial downturn.
Increase the emphasis on accounts receivable collection
In a similar vein to cash flow, accounts receivable (AR) is another key aspect of your finances during an economic downturn. When you do not have the luxury of waiting for late payments, it’s important to make sure you are closely overseeing your accounts receivables to get paid on time to meet your financial obligations.
Although economic slowdowns are sure to be affecting other businesses, it’s essential to manage your customers and potentially separate them into categories based on their likelihood of payment. This can help you plan better when you are likely to be receiving your payments and allows you to focus on who you should be following up with. Check through your business transactions to see which credits are delinquent and harming your business bank account. If you have a vendor or client who is frequently late on payments, especially larger sums, prioritize their resolutions first.
Offering incentives for early or on-time payments can help you increase the likelihood of receiving your money on time. This can often act as a win-win, decreasing the customer’s overall payments and making sure you get your money on time instead of being late or not at all. In addition, incentives are great for the client, customer, or vendor who is also experiencing hardship as it lessens the lump sum responsibility normally owed at one given time. There is nothing better than finding a compromise between your contacts and your business.
Think twice before cutting your marketing budget
During an economic downturn, businesses often look for anything they can cut to save money. Commonly, that winds up being their marketing budget because it’s considered a non-essential cost. Unfortunately, cutting your marketing budget is often a slippery slope, causing you to lose out on potential new customers, have existing brands begin to overshadow yours, and have a general loss of income. Instead of eliminating your budget, try shifting it to more productive outlets like investing in your business as a brand. Think of your customers: are they seeing how unique your business is from your logo or letterhead? Are you focusing on the importance of content marketing and driving the necessary traffic to your business?
Organic search on Google is quickly becoming one of the largest and most impactful drivers of traffic to websites, meaning that digital marketing is not only extremely profitable but highly important. According to the Google Economic Impact Report, organizations using the organic search “receive 5X as much value from Google Search as they do from Google Ads.” This means you get more value by NOT paying for ad space and utilizing your resources to write quality content that can rank organically.
Creating engaging and more personalized content often means that you can spend less money compared to larger and more blanketed advertising plays. By investing time into a more targeted audience, you can reduce costs while increasing your conversion rate due to the attention to detail and personalization that many customers love.
Although each business has a unique approach to dealing with financial hardships, these tips can come in handy to ensure your business stays in the black. Understanding what resources you have at your disposal in times of need can help you react quickly and effectively. Putting your consumers first means you are maintaining a strong and loyal customer base, and keeping your finances hassle-free can help you meet financial deadlines and focus your attention on what needs it most. Increasing the accountability of your accounts receivable can help you plan your pipeline while tapping into more affordable and effective marketing methods can save you money and make your efforts more impactful.
No matter how difficult your current hardships are, there are still many ways to be financially responsible while maintaining your brand identity through marketing, customer engagement, and prioritizing your cash flow. Consider these financial tips during periods of economic downturn to help you right your business and continue to grow without missing a beat.