Even during an economic downturn, your business can generate revenues and experience growth. While some businesses struggle as the economy drops, those with a plan can thrive and position themselves to capture market share.
When the market fluctuates, your business practices need to adjust with it. Here are a few things you can be doing to prepare and increase your staying power.
Preparing for a Recession
The key to growing your business during periods of economic uncertainty is all about preparedness and cash flow management. If you think an economic downturn or recession is likely in the near future, start to take action to minimize the impact on your business as soon as you can. Preparations that will help your business weather a down economy include:
Accelerate Cash Flow
Use electronic invoicing to speed up the cash conversion cycle if you have not already done so. Provide more ways for customers to pay on time with credit cards, electronic funds transfers (EFTs), and fintech payment processors like PayPal and Google Pay, in addition to payment by check. Offer customers cash discounts for early payment. Review payment terms and eliminate extended terms if possible. Negotiate payment plans with past-due accounts.
Review Inventory Practices
Too much inventory in a business downturn ties up cash that will be needed to fund operations.
Bring days of inventory on hand in line with estimated sales requirements. Shorten your supply chains to reduce inventory levels. Reduce order quantities, and liquidate slow-moving and obsolete inventory for cash.
Manage Accounts Payable to Conserve Cash
Ask suppliers/ vendors for better payment terms. Discontinue paying early to earn cash discounts. Don’t pay your accounts payable any earlier than necessary. If necessary, stretch payments so long as it doesn’t negatively impact your relationship, trigger a credit hold, or affect your credit rating.
Reduce Expenses
Cut general and administrative expenses, but avoid making reductions to sales, marketing, and product program expenses. These programs are the link to your customers as well as the marketplace and your source of future growth. By resisting the urge to make cuts in these areas, your business will be positioned to capitalize on the economic downturn and potentially scoop up market share left by competitors. Focus on core competencies and what is a necessity, not on what is nice to have. Protect key programs that are vital to your future and remember – cut fat, not bone.
Maintain Quality Standards
It is important you also maintain the quality of your products and services. Your customers expect the same level of quality regardless of your financial circumstances. This will help you to not lose your customer base because you went with cheaper suppliers. Maintaining sales volume is critical to cash flow and working capital management.
Protect Personal and Business Credit Ratings
Your personal and business credit ratings are very important for obtaining additional working capital facilities. If you and your business have good credit ratings, protect and maintain them. If your credit ratings are weak, review what can be done to improve them.
Work with an Invoice Factoring Company
You can also use an invoice factoring company to accelerate your cash flow. Invoice factoring involves the conversion of your accounts receivable into immediate cash instead of waiting 60 days or more to be paid. Adequate cash flow will allow you to maintain operations and provide business funding for programs to gain news customers or enter new markets.
Increase Working Capital Facilities
Sufficient access to working capital and the right type of facility are critical. Take steps as soon as possible to obtain the working capital your business will need. Increase current limits on banking and other revolving lines of credit.
Expand your working capital facilities with an accounts receivable factoring program and purchase order (PO) financing facility. PO financing can be used to purchase inventory and supplies for new orders. These programs are easier to obtain than a bank loan and they don’t reduce credit availability under existing credit facilities. Approval is based primarily on the creditworthiness of your customers, not the financial strength of your business. It will be more difficult to increase working capital facilities during a recessionary period, so it is better to act before a business slowdown accelerates.
Generating New Business in a Down Economy
Reducing expenses, accelerating cash flow, and increasing working capital are critical to weathering a business slowdown, but you also have to find ways to generate business to offset decreases in revenues. Here are some ideas for generating business in a down economy:
Existing Customers
Don’t forget about your current customers. Protect the business you have, and try to increase your share of customer business. Convince your customers that you should be their preferred source of goods or services. Keep in mind that if your business growth has stalled, your customer behavior may have changed so you will need to adapt with it. Inquire with customers and see if there are any other products or services that you can offer to add value. Customer loyalty and consistent branding are valuable tools in retaining your credibility in the industry.
New Markets
Strategize how you can expand your customer base and even pick up business from competitors. Your competitors may lack sufficient planning and be struggling during tough economic times. If they have cut quality or reduced product/ service offerings this will become an opportunity for you to pick up market share.
If there is an international market for your business, review opportunities that would be a good fit. The growth of integrated logistics providers and assistance available from government agencies make it easier for small companies to tap into international markets. The defense industry and federal, state, and local governments use a vast array of products and services, and volume is often not impacted by the general economy. See what you need to do to become an approved supplier to these markets.
If you only do business in your local area or region, contact sales reps, state and local government agencies, and industry associations to see what would be necessary to expand your geographic footprint.
New Channels of Distribution
E-commerce has become a major B2B channel for manufacturers, wholesalers, and service providers to reach customers directly. If you have a limited web presence, consider developing an integrated internet strategy, including social media, to pull customers to your website, place orders directly, and communicate with your company.
Ease of Doing Business
Make it easier to do business with your company. Review your business terms and practices to see if there are things that can be changed to make it easier for existing and prospective customers to do business with your company. Consider reducing order minimums, improving freight terms, expanding office hours, improving communication channels, and upgrading your company website.
Marketing and Advertising
Typically one of the first things cut when money is tight is the marketing and advertising budget. Resist the urge to do this. If you’re on a limited budget, get creative and find new ways to reach new customers. Social media postings, email outreaches, your company’s website, and improving SEO are all cost effective ways that can all be utilized to help get your name out there and attract new customers. Keeping these channels open will allow you to be better positioned to scoop up market share that competitors may have left.
Bargain Shopping and Negotiations
Many vendors may be offering price concessions or willing to negotiate better rates/ terms while demand is low. Bargain shop and take advantage of reduced costs. This includes discounted rates for products and service offerings, commercial rents, deals on fixed assets and equipment, as well as hiring more qualified personnel that may have previously been out of your reach. Take the opportunity to upgrade and make improvements where possible as this can position you better in the long run.
When a business downturn is on the horizon, prepare early to protect cash flow and working capital. Reduce expenses and manage the components of working capital to minimize the possible effects on your business. Work with an invoice factoring company to accelerate cash flow and expand working capital facilities to weather the slowdown.
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Successful companies evolve when market fluctuations occur. As a business owner, you can thrive during an economic downturn and take advantage of opportunities by preparing ahead and implementing the above strategies. You will also avail yourself of more options when you are not operating in crisis mode and when the financial health of your business is at its strongest.
No matter an economic slowdown or a full-fledged recession, Capstone is here to help you stay focused on what you do best – running your business. We have the experience and resources to custom-tailor invoice factoring and P.O. financing programs for you.
