As the world grapples with the coronavirus pandemic, many businesses are shut and a third of mankind is in lockdown. By all accounts, this is going to be a long recession with lasting impacts for all of us.
This is a nervous time for small businesses and we’re still on the downward slope. Many businessmen will be forced to make hard decisions in order to survive. As you shift into survival mode, keep these practices in order to get through this tough time.
During the worldwide financial crisis during the late 2000’s, it took over 2 years for the economy to rebound. Expecting that this recent slump will be over soon is unrealistic. According the experts it’s going to be a slow recovery so corrections won’t happen overnight.
The secret to surviving this recession is cash flow. Here are some tips that can help improve your balance sheet.
Reduce Outflow of Cash
Basically this means, cut expenses. You can do this by:
- Reducing monthly rent – you can ask your landlord to reduce monthly rent. You can ask them to lower rent in exchange for a longer lease. Remember that your landlord is a businessman too. He might be in favor of having you rent is space at a lower rent compared to having the space sit vacant for months. Don’t be afraid to ask and negotiate.
- Find cheaper utility rates – consider your normal utility providers like internet, cable, phone bill, electricity and water. For utilities like internet, cable and phone bill there look for cheaper alternatives. Call their competitors and see if they are offering cheaper services. If you tell them you are willing to change vendors, they might be willing to have you sign on at a cheaper rate. Once they know you are switching, call your current vendor and let them know. They might be willing to match the offer so that you won’t actually have to go through the trouble of switching.
- Cut discretionary spending – perks can nibble away your bottom line. Pandemics and recession calls for tightening the belt so don’t be afraid of doing so. Cut off discretionary spending like subscriptions, employee birthday cakes and entertainment. On the other hand, a well-stocked coffee machine and fridge are morale boosters and are affordable so keep them around.
- Lease rather than buy – need a new furniture, computer or laptop? Explore leasing options rather than buying right away. You might end up paying more in the long run but during a recession it’s all about the cash flow. If your business runs out of cash in 6 months, having a computer that’s paid in full won’t matter anyway.
- Pay payables later – call vendors for better terms. Try to see if you can negotiate a 30-day term into a 45-day. Having cash on hand for an extra 15 days could be a big factor for your business’ survival.
Increase Cash Flow
This is basically the opposite of the above. Now that expenses are cut, increase more money by doing the following.
- Collect receivables – get more cash flowing in by enticing your customers to pay sooner. For example, offer them a 1 to 2% discount if they pay early. Make sure that you’re offering this discount only to your best customers. Stop giving all customers free credit because you’re not a credit card company.
- Keep customers – downsizing is normal during a recession and pandemic but don’t cut down your workforce so much you can’t service your customers anymore. Good service is a reminder to customers why they chose you over your competitors. This is a good time to remind customers that you have good service and the exceptional value you offer.
- Appreciate your best customers – many small businesses will see their businesses dry up as a result of slower spending. This can be catastrophic for small businesses and this is the reason why you should appreciate your best customers. Give them a call or send them a card thanking them for their continued patronage. Ask them to come to you first if they have needs or if they are thinking of changing vendors. Showing them your appreciation will tell them that you care about them and their needs.
Position Your Business For A Recession
A recession environment is very different from a normal one. Consumers spend differently so it’s up to you to adjust to their new behavior. Here are some ways you can adjust.
- Lower inventory costs – a lot of cash is tied on inventory. Now that consumer spending is lower, do you really need 100 units of every stock sitting on your shelf? Reducing the amount of inventory can free up cash. You can also liquidate your lowest performing products and free up more shelf space and cash.
- Revamp product line and marketing campaign – during a recession, customers will buy what they need as opposed to what they want. This is why you should reposition your product and align it to their needs in order to survive. The same is true with your advertising. Focus on relevant content that the customer can use instead of bubbly messages.
- Find ways to leapfrog competition –turn this pandemic into an opportunity to get ahead of the competition. Launch initiatives that can allow you to take a bigger piece of the market share so that you can put your business in a better position for recovery.
Employees are usually the most expensive part of running a business. However, employees are also the source of your value. Slashing labor costs while boosting productivity is like walking a tightrope. But managing it will enable you to survive the recession.
- Cut once, cut deep and do it soonest – layoffs suck but it is important to ensure business survival. If you have to lay off employees, make sure to cut deep so that you won’t have to do it again in 6 months. Making shallow cuts will only distract the remaining employees because they know there will be more to come and they will be more scared to lose their jobs. Laying off employees sooner rather than later means you can afford bigger severance packages and will prevent remaining employees from worrying and let them get back on the job.
- Reduce hours first before reducing salary – if you ask workers to take a 10% cut and ask them to work the same working hours, they will resent you and reduce their productivity. Reducing hours is better because it retains productivity and lets you save the same amount of cash.
- Cut or eliminate your salary – you have to cut or eliminate your salary first before you cut your employees’. If they don’t see that you’re sacrificing more than they are it won’t matter if you saved 20% from their salary because their productivity will drop dramatically.
- Get everyone on the same page – don’t be afraid to open up to your employees. Let them know where you are in terms of how the business is doing. Cultivate a “we are on the same boat” atmosphere so that they can be part of the problem solving process.
Keeping your business afloat during the Covid-19 pandemic will be difficult but not impossible. Having a realistic goal and plans for the next 2 years will help you get through the survival process.