Provided by the AICPA
The slowing economy and the possibility that we’re headed for a recession are worrisome subjects for small business owners, whose biggest concern is how to keep sales up when customers cut back on spending. But there are several steps small business owners can take to recession-proof their business.
As one of small businesses’ most trusted advisors, tax and accounting professionals are in the ideal position to offer eight steps that can help entrepreneurs in tough economic times:
Step 1: Focus on your balance sheet . Business owners love to talk about sales and tell you how many millions of sales they had this year, but, as you get closer to the recession, the focus should be on your balance sheet. Make sure you’re managing your cash flow well. It’s something you should be doing all the time, but it’s even more critical in a recessionary environment because there’s just that much less cash floating around. While the going is still good, try to put cash aside to build a war chest.
Step 2: Diversify and launch. Economic downturns have a benefit for business. A recession gives you the opportunity to step back, rethink and review all sectors of your operation. Consider launching a new product or service offering not currently offered in your market. Use the time to diversify your products, services or industries so you don’t have too many eggs in one sinking basket.
Step 3: Start looking at your credit and debt. You should begin looking at decreasing your debt. Negotiating with a bank from a position of power and good financial resources in a good economy is a lot easier to do than trying to negotiate in a recessionary environment. Don’t think of that extra credit simply in terms of reserves to get you through cash-trickling times.
Step 4: Review your accounts receivables . When things are starting to turn down, you want to keep a sharp eye out for someone who is in to you for quite a bit because if they go under and cash is tight, that could have a huge impact on you small business. Similarly, review your agreements with suppliers. Maybe you don’t have to pay in 30 days; maybe you can pay in 45. Again, it’s easier to negotiate in a good economy than in a downturn.
Step 5: Review your company discretionary spending items. Although small businesses are typically very lean, recession survivors often still manage to trim some fat. Think of all the discretionary items. Take whatever steps you can to reduce your debt. The less you have to pay out on a regular basis during an economic slowdown, the less painful it will be. Employ labor and time-saving technology to reduce business costs. More effective use of the Internet can save on travel, training, administration and operations costs.
Step 6: Review your customers. Start reviewing how a recession will impact your customers. For example, if your customer base is involved in the home-building industry, and home building is down, then you know these customers are not going to be demanding as much product, so you better get ready for that. One way to do that is to search out alternatives. Somebody’s always making money, even in a recession, so if you can find out where those pockets are and if you have services you can provide to them, maybe you want to expand those services.
Now is also the time to take customer service to a new level. Get in touch and stay in touch with your active customers. Take nothing for granted. Make sure your pricing is competitive, your service exceptional and your attitude reflects how much you value their business. Revisit dormant customers and see what you can do to bring them back into the fold. Sometimes it takes as little as just asking to restart a relationship. Other times it can take some imagination, but resurrecting a past customer can still be easier and less expensive than finding and breaking in a new one. Ask your customers for referrals. While this is a good practice at any time, it is particularly important in a down economy.