Business Coaching | Business Plans | Raising Capital
|Victim or Victor: Is Your Small Business Prepared to Profit in a Recession?|
By William R. Patterson
With volatile financial markets, tight credit, rising inflation, high fuel and commodity prices, small business owners and consumers are facing what many are calling a "historic financial crisis." However, this crisis presents the opportunity of a lifetime for prepared small business owners. The decisions you make now will determine the future success of your business.
To help you protect yourself and profit in today's difficult economy, here are seven powerful tips to recession-proof your small business.
1. Get help from experts.
New risks are converging that many business owners have never experienced.
All of these critical factors emphasize the importance of leveraging a range of
experts from business coaches to accountants to help you anticipate, mitigate
and profit from these risks. Experts can help you identify and capitalize on
actionable market information, best practices and business accelerators to
maximize revenue and tax-saving opportunities. For many small business owners,
these things will mean the difference between severe losses and six- or
2. Avoid Big Cost-Cutting Mistakes.
Many business owners have the wrong mindset when facing a recession.
They ask themselves, "How can I cut costs?" But the real question should be,
"How can I increase and sustain profitability?" The answer to that question
might not lead to cutting costs, but increasing them. It is important to remain
focused on intelligently increasing profitability and value, not trying to cut costs
and "wait out" out a recession. However, if you truly need to cut costs, you may
explore restructuring or consolidating debt to lower interest rate terms. Additionally,
you may try consolidating non-business critical functions and services with the
same vendor or outsourcing.
3. Build Your Cash Reserve.
During an economic downturn, it is vital to have a sufficient cash reserve to handle
emergencies and to take advantage of new investment opportunities. Your cash
requirements will depend on your industry, access to capital, variable and upcoming
non-recurring expenses, potential acquisitions and earnings predictability. Look at your
financial statements over the last 2-5 years. Observe the historical business cash flow
pattern and factor in any new potential risks. If you do not have a sufficient cash reserve,
this is another area where experts can help you.
4. Increase the Predictability of Your Income.
Focus on increasing predictable income streams to stabilize your business, reduce risk,
plan effectively and position your company for greater access to capital. Consider adopting
various strategies such as a membership, subscription or licensing model that requires
customers to pay regularly for your products and services. By integrating or bundling your
offerings as part of a subscription service, you can create greater value for customers while
increasing your revenue. Additionally, this strategy of bundling—or being a "one-stop shop"—
can provide a competitive advantage if you are selling commodity products and providing
services that are undifferentiated in the marketplace.
5. Create New Products and Services that Cater to Your Most Profitable Customers.
In difficult times, generating additional revenue from existing customers may be a lower-cost
alternative to acquiring new ones. A simple way to identify new revenue opportunities is to
survey your most profitable customers. Seek ideas to help you create new products and improve
your company's service, marketing and conversion rates.
6. Form Strategic Partnerships.
Strengthen vulnerable parts of your business by leveraging strategic partnership strategies.
Product and service exchanges, joint-ventures, affiliate programs and co-branded and private
label offerings can be great ways to control costs while increasing your revenue. Have a backup
for key vendors if they fail to perform or go bankrupt. The right relationships can lower your costs,
shorten development time and strengthen your offerings
7. Look for Opportunities to Expand Your Business.
Many suppliers, competitors and complementary businesses become vulnerable in a recession.
Deep discounts on products and services may be available by buying in bulk or extending vendor
contracts. Also, watch for opportunities to grow your business through a merger or acquisition.
Remember, down markets present unprecedented opportunities for small business owners.
If you leverage experts and the right team, it will be easier to grow your business and accelerate
profitability while minimizing risk. Start now by using a business coach to capitalize on these seven
tips and help you implement a winning strategy.
Next: Creating a Sound Business Plan
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