The recent economic downturn has many business owners scrambling to determine how to maintain business operations until life returns to normal. While it’s best to plan for these downward shifts when business is booming, there is still time to develop a business strategy during a downturn. Follow these suggestions to help your business survive, and potentially thrive, through the turbulence.
Prepare for Downturns While Business is Good
During strong economic times, it’s easy to be optimistic and focus on financial success, but this is the best time to plan for a downturn. Analyzing your financial plan and developing strategies for a downturn can help you better weather economic inconsistencies when they happen. Even when financial projections look strong, building savings and having operational cash reserves can increase your company’s chances of successfully surviving financial difficulties. Aim for a six-month reserve for business expenses.
Enhance Your Cash Flow
Even if your business is not currently flush with cash, there are ways to weather a financial downturn after it has begun. The first is to find ways to improve your cash flow. One way to improve cash flow is to reduce your overhead. Additionally, eliminating unnecessary expenses and negotiating with lenders to alter terms are strategic steps you can take to increase the money available to pay your monthly obligations. If you’re unsure where to make cuts, have a professional look over your books and make some suggestions on payments that could be reduced or eliminated. Collecting on past due accounts is another easy method of improving cash flow, so make calls to customers who may be behind on their payments. Additionally, offering a discount in exchange for expedited payment is a great way to increase your cash flow.
Capitalize On Your Relationship with Your Banker
Working with a community bank typically allows you an excellent opportunity to build a personal relationship with your bank. A downturn is a good time to check in with your relationship manager to discuss various options that might be available. Your banker probably has an idea of what impact the downturn is having on your industry, which can help them determine the impact on your lending relationship. Your banker can also discuss alternative financing options that might alleviate some of the pains experienced during a downturn.
Know All of Your Funding Options
Since the COVID-19 pandemic has impacted most businesses in the country, many are turning to government loans to help keep their businesses afloat, but those options are limited and have stringent requirements. Before looking at the various funding options available to you, determine what assets you have that can be used as additional collateral for new loans. Another quick way to increase cash flow is to consider invoice factoring. If you have creditworthy customers, consider selling your accounts receivable to a factoring company to get more cash faster.
Talk to Your Vendors
Strategic business planning for a downturn starts with a clear assessment of your company’s financial direction. Communicate with your vendors before you start experiencing cash flow problems, as opposed to waiting until they start contacting you about late payments, and discuss any possible changes to pricing due to market conditions. Also, analyze your current contracts and determine if any of them have flexible terms that would allow you to defer payments without penalty.
Keep Building Client Relationships
Customer relationship management is critical in upturns and downturns. Keeping in touch with your clients and prospects allows your business to assess what you are doing well and places in which you may improve. During a downturn, managing client relationships can also help you find new business. Contact your clients to see how they are doing and if there is any way that you can help them meet their needs. Send out a monthly newsletter to communicate successes with your clients and help keep your business top of mind.
Capitalize on Your Strengths
When business is booming, you may be so overwhelmed with work that you don’t consider branching out into new avenues. In an economic downturn, it can be tempting to try and venture out, but this is the best time to stick to your strengths. Rather than trying to move into markets for which you are not suited, determine what you do best and how you can capitalize on it. Once you know what makes you the best, develop marketing tactics to communicate your strengths. Start interacting with your clients via social media and other internet-based marketing channels. This is an easy and cost-effective way to increase exposure, build up word-of-mouth advertising, and build new client connections.
Economic downturns can bring unwanted stress and worry to business owners and employees alike, but they also offer the opportunity to develop better business strategies. By analyzing your current situation and finding new and creative solutions to make it better, your business can not only weather the downturn, it can come out stronger.
Discover Invoice Factoring
Want a better understanding of invoice factoring and its advantages to helping your business conquer cash flow? Contact us today and get connected with an experienced relationship manager to discuss the simplicity and benefits of invoice factoring.