Four Tips for Business Owners to Prepare for What’s Next
What goes up, must come down. It’s true of balloons and it’s true of the economy. As a business owner, a recession is a scary thing — and something that can be challenging to predict. We knew something was coming earlier this year — every economist on Earth was predicting it — but no one predicted a global pandemic or depression. Keep your business strong and your mind at ease with some tips to help you prepare for what may be just around the corner.
First, Look Ahead
If your business is down by A LOT, know this: you will be OK. Eventually. Once you have the mental capacity to start to plan for the future (beyond just the next 30 days), the need for our work will persist despite a recession or other economic stumbling blocks. You may not get the premium dollar you did just two months ago, but you’ll be working.
This is also a great time to audit what you’re doing with your business:
- What are your goals?
- Does your team and service mix match those goals?
- Do you have expenses you don’t really need?
Preparing for a Down Economy
Forbes has advice for preparing for a down economy. Though the down economy is already here, there are four things business owners can focus on now:
- Manage profitability
- Identify and maintain your strengths and best customers
- Be ready to decide what you can stop doing
- Manage liquidity like you do your profitability
Let’s talk about each of these.
Manage Your Profitability
You need to know what your margins are on gross and net revenue AND by customer type. I served on the board of an accounting firm until they sold and I can tell you that is one thing accountants have on most small business owners. They can tell you exactly where their money goes and they work a plan that is specific to meeting a certain profitability goal.
While I don’t recommend profits over people, you do need to know how much money you’re making. And, if you want cash to be king, your profit margin should be at least 15%.
Similarly, you need to know where your money is going. Once a quarter, I go through our credit card and billing statements (a task I do NOT enjoy) to make sure what we’re paying for is truly necessary. Doing this isn’t fun, but it’s necessary.
To be profitable, you have to be willing to cut the fat and spend money only on the things that help you grow your business. Know your profit margins, review your expenses, and then cut out the things you truly don’t need.
This will help you both be profitable and save the cash you need to get through the next couple of years.
Identify Your Sweet Spot
When you’re jittery about the financial future — or even when you’re starting out or you haven’t met your goals for the year, your first instinct may be to cling on to every customer you have to keep revenue flowing. But if you have customers who are causing you as much grief as profit, or services that are more trouble to deliver than they are worth, firing them now and freeing up some mental space may seem counterintuitive, but it works.
It’s always pretty amazing how much easier things get — and what new business you can bring in — when your difficult client is gone.
This, fortunately or unfortunately, works with staffing, too. If someone is a bad apple or they’re not pulling their weight, it’s human nature to want to work with them to try to turn things around. But when you let someone go, it frees up your brain to focus on other things — and growth almost always comes from that.
There also may be some services you have to let go.
Case in point: We have a program that I love. I love working through the program with our customers, and I love the results they get. But we’ve also found that less than 20% of customers really benefit from the program. It’s just not a good fit. Because of that, we let the program go. I’ll likely revitalize it in the next year or two but for now, it’s time to let it rest so we can focus on the things that our business needs.
It’s human nature to allow our less-than-ideal customers, bad apple employees, or poorly executed services to make a dent in our revenue, but as the economy takes a turn, we all need the time and energy to be flexible so we can react to the things we cannot control.
Knowing When and What to Quit
This doesn’t mean you need to immediately fire a bunch of clients and institute another round of emergency budget cuts or furlough employees. But it does mean you should know what else you may have to “quit” as the economy worsens in coming months.
As you look to cut expenses, involve your staff. The leadership team should know cuts are coming and should be involved in the decision of what to cut. Involving the team may reveal that something you think everyone needs isn’t as necessary as you thought. Likewise, they may have some ideas you hadn’t even thought of.
Managing Your Liquidity
If you’re a leader of any kind in an organization and you have P&L responsibility, you have to manage liquidity just like you do profitability. Liquidity is the money you have available to pay for your expenses. For most of us, that’s the cash sitting in our bank accounts. It’s impossible to reach your goals without understanding this.
Review the payment terms you have with your contractors and vendors and start to extend your own accounts payable. Your clients are going to do the same thing to you so everyone will be rowing in the same direction.
One of the massive things I learned during the Great Recession was to never rely on a single income source again. At the time, I crafted a goal to add seven revenue sources — one a year for the next seven years. Now, 10 years later, I exceeded that goal: my company has more than 10 revenue sources. And I’ve been very careful to manage to profitability without exhausting my team.
Start to think about what you can add as additional sources of revenue without leaving the comfort of your practice:
- Virtual speaking
- Virtual consulting
- Virtual workshops
- Online courses
- Virtual events
Cash is king, my friends! Collect it, save it, and be ready for a rainy day.
Invest In Yourself
If there’s an area of business management or finance you struggle with, invest in yourself to learn more about it. That doesn’t mean registering to complete an MBA, but it might mean setting aside dedicated time on your schedule to swim in the deep end of business finance.
It’s not sexy. It’s probably dreadful for most. But recession or not, it’s imperative.
About the Author:
Gini Dietrich is the founder and CEO of Arment Dietrich and author of Spin Sucks, a PR and digital communications consulting platform. She may be reached on Twitter at @ginidietrich.