HOW TO SURVIVE AN ECONOMIC DOWNTURN

HOW TO SURVIVE AN ECONOMIC DOWNTURN

HOW TO SURVIVE AN ECONOMIC DOWNTURN

By Penny St. James

The events of the Spring of 2020 left many entrepreneurs scrambling for both personal and business survival solutions due to the COVID-19. Many small business owners had some idea what a market slow down might mean in terms of reduced consumer activity, but no one was prepared for the halt in the U.S. economy caused by a sudden global flu pandemic. Several weeks have passed since the onset of an economic slowdown that is now being referred to as a recession with the potential of becoming a depression. No matter what it is called, as a small business owner chances are the changes in consumer behaviors and spending have caused a reduction in your cash flows. During your experience, it is certain that you have been forced, without notice, into a mode of survival of which you are not exactly sure what your next steps are. As you proceed through these next few weeks (if not months) and continue to operate in survival mode, you will want to remain mindful of the following:

I. Prepare for the Long-haul

Most experts regarding “economies in crisis” indicate that major shifts on the road to economic recovery are not expected until sometime in the year 2021. Whatever the case might be, entrepreneurs need to take note that a return to normalcy will be a slow process and any corrections put into place will not happen overnight. As you shift into high gear in your race towards keeping your business open and operating be prepared to put some time in and to exhibit some patience.

II. Initiate Strategic Cash Flow Management 

There are several measures that you can take to improve your financial position that begin with reducing your payables and increasing your receivables. Your actions during survival mode should include a revised budget and an improved balance sheet. In revising your financials, you will need to think in terms of decreasing your cash outflows (expenditures) and increasing your cash inflows (revenues) both of which are necessary to survive an economic downturn. A few key steps in improving your financial position are as follows:  

 ARe-negotiate payables

  • Be proactive in contacting creditors and people that you owe money to learn if they have any special offers that will help you get back on track and if not be prepared to negotiate.   
  • Contact your time-pay vendors and negotiate better terms such as getting a 45-day term versus a 30-day repayment term. This will allow you to have cash on hand for an extra 15 days which is crucial while you are in survival mode.

BReduce scheduled expenses

  • Contact your landlord and negotiate a lower monthly rental amount. You may want to request 1-2 months of free rent for financial recovery purposes. Your landlord will be going through financial recovery too and will find it better to negotiate than risk the space being vacant.
  • Review your monthly utilities such as water, electric, internet, and phone services to see what kind of deal they can offer as a result of an economic downturn. Chances are they have already advised their customer service pool regarding any new offers. If for some reason they have not, then kindly let them know you will be checking with their competitors.

C. Plug your leaks

  • Cut extra expenses like bank and debit card fees, newspaper subscriptions, cable TV, and extra technical services.
  • Revise employee morale-boosters by celebrating birthdays in groups and cards for other personal employee events. Continue to keep morale up with inexpensive productivity boosters such as fresh fruit, water, treats, and gift cards.  
  • Review other expenditures such as consumables like paper goods and fuel for vehicles to see if expenses can be cut in these areas. 

D.  Rethink new purchases:

  • Consider taking out leases on vehicles, furniture, equipment, and any other leasable items. 
  • Review any purchases planned before the economic downturn and consider foregoing these purchases until after the economy recovers. 

III. Increase Revenues

Once you have your expenditures and cash outflows under control, the next step is to increase your income by identifying inflows of cash. If you have enough money already in your savings and contingency plan, then you may want to reserve those funds and take the following steps: 

  1. Enhance the collections process
  2. If you do not already have a collections process in place to collect outstanding debt or amounts owed to your company, you will want to put one into place. 
  3. Select two days per week to work on collections. An example would be to send out invoices first thing on Tuesday of each week and follow up on their receipt (by phone if need be) on Thursday of each week. 
  4. Put a system into place that encourages prompt payment such as giving a discount for paying early or assessing a 5% penalty for paying late. 

2. Trim down on your offerings

  • Make information and updates about products and services available online or via email versus calling the customer with the information. 
  • Schedule a meetup time and location and deliver products to multiple customers at once rather than going to each customer one-by-one. 
  • If your sale products and include them in a box or container then consider changing the size of the container and/or reducing the number of items included. 
  • Review your pricing model and see where you can make reasonable adjustments to prices for products and services.

3. Open additional income streams

  • Consider the rule of mutual return by looking for other businesses that you can partner with and combine your efforts.
  • Review your current product and service offerings and look at ways to create spinoffs or enhanced products and services.  

IV. Drive Customer Loyalty 

Now is the time to underscore the value of your business by reminding your customers why they chose you in the first place. Look for ways to drive customer loyalty by putting your existing customers first and then by attracting a cross-section of new customers. According to experts the key factors that derive customer loyalty involve:

(1) Designing a regular system of communication through email, text, or newsletters and then follow up with the added touch of a phone call or a visit when feasible.

(2) Offer something of value such as a pricing tier that makes your products and services affordable for a range of budgets.

(3) Use personalization to win over customers by remembering their birthday or offering monogramed items.

(4) Resolve issues quickly and easily by offering a resolution that includes a knowledge based and sincere response within a short period of time.

(5) Offer something exclusive like providing industry information before it becomes public; or allowing customers an opportunity to sample a new product or get a reduced price on a service before it becomes available on the market.

(6) Create a community and cater to your customer’s interest and needs online, or via text, or email by making them feel special in today’s market of mass consumerism.

(7) Start a loyalty program by finding a way to make customers feel rewarded each time they make a purchase. 

V. Develop an Action Plan 

Just as you realized the significance of developing a plan to survive a crisis or economic downturn, it is equally as instrumental to have an Action Plan to help guide you through the crises and ongoing throughout the lifespan of your business. An Action Plan is usually created at the end of the strategic planning process cut can be created at any time. The steps in creating the plan are:

(1) Gain buy-in by allowing your team to have input into the plan while it is being created.

(2) List action items which are the desired task to be taken as a part of the plan.

(3) set a timeline over about twelve months that establishes the time frame for achieving each action.

(4) designate an overseer of the plan along with resources such as time, money, equipment, and the personnel necessary to carry out the plan.

(5) establish checks and balances by putting a system in place to track the effectiveness of the plan and adjust to the plan as needed.

(6) Reveal the plan and explain the significance of the plan, how it works, and each person’s role in carrying out the plan.

(7)Keep the plan active by setting a schedule to review the plan on an ongoing basis to ensure that it stays alive and in effect until a replacement plan is developed.

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