Operating in an Economic Downturn

When companies face uncertain business conditions, repercussions can be felt among both small and large firms. However, a small firm that has used its financial planning software and other resources to prepare for uncertain conditions is likely to find it has the necessary tools to weather any outlook.

How does your cash flow look?

It is likely that you already use your financial planning software on a regular basis to ensure your firm is maintaining healthy cash flow. However, when conditions are changing rapidly you may need to give these figures a particularly careful assessment, generating projections that cover the next three months.

One of the biggest challenges businesses face in volatile times is having enough cash on hand to pay vendors and make payroll. With this in mind, you may find you need to be more proactive about accounts receivable to make sure you get the cash you need. Give incentives to customers who pay early or are willing to pay cash up front. It is always a good idea to see if you can shorten your collection period - but in a downturn, strictly enforcing these measures is absolutely necessary to keep the business running.

Can you trim expenses?

Even in a robust economy, it makes sense to keep an eye on costs. However, first make sure that the expenses you are targeting will not negatively impact business operations or compromise your potential for growth.

Where to cut. In any environment, becoming more efficient can help reduce variable costs such as fuel and utilities. For example, think of ways to reduce the amount of driving done by employees and use teleconferences and email instead of face-to-face meetings. Switch to energy-efficient light bulbs and encourage staff to be responsible about turning off machines when they are not in use.

In an uncertain business environment you can also explore opportunities for consolidating operations, converting inventories into cash (particularly because you are likely to face slower sales) and negotiating discounts with vendors to help see your firm through.

Where not to cut. The Small Business Administration warns owners of smaller firms against trimming budgets related to marketing during a slow down, because it gives competitors an opportunity to pull ahead. Instead, you can change your focus to less expensive initiatives such as promotions, contests and coupons to get people spending without removing yourself from the competitive sphere.

Similarly, you should ensure that any spending reductions do not diminish the level of customer service you are able to provide - high-quality customer care is crucial for maintaining profits in a difficult economy. Savvy business owners who are able to adapt to a challenging economic situation will be perfectly placed to attract new customers when the climate changes.

Concentrate on existing customers

As mentioned above, loyal customers are your greatest asset. You can't afford to take this business for granted. Instead, check in with customers regularly to see what their concerns are. Listen to and act on their advice. Concentrate on maintaining their business by providing consistently high customer service, pricing your products competitively and emphasizing quality.

These tactics will also work to your advantage when it comes to referrals. As consumers grow more cautious about where they spend their money, they will be more likely to seek advice from family and friends - and act on it. You want your business to be on the tip of their tongue.

There are a couple of other ways to maximize profits from the customers you already have, which can be recorded by your financial planning software. Encouraging customers to sign long-term contracts will guarantee you have their business for a specific period. You can also see who is willing to pay upfront, which can provide a welcome boost to your cash flow.

Revisit previous customers

A down time, when business is slightly less intense, provides the perfect opportunity to revisit customers who have stopped doing business with your firm and try to lure them back. Remember that a company's circumstances can change at any time - and they may be more receptive to your business now than they were in the past. Or they may have a specific reason that they stopped doing business with you - sometimes, you just need to ask.

Diversify your revenue stream

Initially, a downturn may seem like a risky time to try something new. However, diversifying your revenue stream can actually make your firm more secure, because one aspect of the business can compensate for the other during challenging times.

Sluggish sales may also create some extra time for you to reassess all aspects of your company and consider introducing a new service or product. When thinking about how to diversify, it is probably best to choose something similar to what you already do - yet would not face similar vulnerabilities in the current economy.