Are you a small business owner tightening the notches on your belt under pressure? Are you worrying that the next recession will render you unable to pay your SBA loan? It’s no wonder with political tensions rising worldwide, environmental uncertainty creeping in, and economic breakdown peppering the global landscape.
If you’re a long-standing small business owner, you may remember previous recessions. No doubt, you understand the importance of recession-proofing your company for the potential of future economic setbacks.
Rather than entering panic-mode, small business owners can methodically and logically find ways to maximize outputs while minimizing inputs. By trimming the fat on wasteful practices, small business owners can capitalize on their strengths. By leveraging and enhancing your main positives, you’ll cut back on what’s not needed to become a more streamlined and flexible outfit.
This drives profits and impact and reduces waste, while building your solid reputation as a reliable and robust service provider.
Use these top 5 tips to create a recession-proof framework for your business:
Find the Leaks
Just like the waterworks in your home, your business operates like a pipe system with inputs and outputs, diversions and distributions.
To get the best from that system, you need to ensure that all the inputs/costs your business needs – staffing, inventory, distribution, marketing, travel, etc – is outweighed by your outputs (mostly profit, but these could include ‘impact’ for NGOs and charities). You aim to create a system where you get out more than you put in.
Imagining the water in the pipe system is your cash flow, the first step to tightening up this system is to stop any unwanted leaks. Where are money, time, and resources being wasted unnecessarily?
Drilling down into this, you may find you’re paying too much for a supplier. You may uncover inefficient staffing. Perhaps you find you’ve been poorly advertising in a magazine without ever gaining a sale. Maybe you’re offering and marketing a low-conversion product which gets very few sales at all.
By pulling apart the different facets of your company, you’ll find a myriad of places to tighten your belt and plug up leaks in your profit stream.
Close the Cash Flow Gap
Often, best business practices require small business owners to extend lines of credit to customers. Perhaps your client has ordered a shipment worth $1000 to be paid within 30 days. For those 30 days, there is a cash flow gap where your company has neither the inventory nor the payment.
Closing this gap can relieve pressure drastically. Try shortening this time to 2 weeks or make your invoices due on arrival of the product. You could even split payments over 4 weeks. In some cases, as with consultancy services or expensive tradesman gigs, it’s customary to ask for full or part-payment upfront. Why not ask for a sizable deposit to combat cash flow discrepancies in that period?
Identify Your Strengths and Enhance Them
In life, we’re often encouraged to dwell on our weakest points and find solutions to jump these hurdles. The concept is that by focusing on areas we’re weakest at, we’ll see the most radical improvements.
John Maxwell, notorious entrepreneur and business coach, denounces this idea. While we may see the biggest improvements in these areas, improving our weaknesses doesn’t improve us all that much overall. Instead, Maxwell implores us to focus on our strengths.
Maxwell asks us to imagine our skills scored with numeric values from 1-10 — 10 as the highest, and 5 being average. He notes that working hard on a skill originally scored as a 3 will only bring us to a 5, leaving us as average all round. Instead, work in the areas where you score 6’s and 7’s and refine them to become 9’s and 10’s.
For example, as a small business look for avenues from which you generate the most sales. Drive efforts and resources into crafting and delivering the best pitches through these routes to the customer, while cutting back on advertising with lower conversion rates.
Imagine you sell wedding and occasion cakes, and intended on generating a bespoke market from Farmers’ Markets. Instead, you’ve found most of your profits come directly from Facebook advertising to corporate events. Cut back costs on travel expenses and stall fees at Farmers’ Markets, and redirect this time and budget into pushing Facebook advertising and online sales.
Take A Closer Look
Alternatively, take a look at your services and products. Identify your top-selling points that are most popular with your customers and those that aren’t. Decrease the ones that don’t work and double down on the lines that do.
Say you own an online fashion store selling women’s clothing, jewelry, footwear, and accessories. You find that women are interested in your footwear, jewelry and accessories lines, but struggle with the limited sizing your production setup can offer. Rather than wasting time, money, and effort on improving the production processes, reduce these less popular aspects and enhance your well-favored sectors. Diversify your footwear brands, invest in add-ons like handbag covers, shoe insoles, and handbag-shoe combinations. Use your customer feedback to steer you toward the products and services they are asking to purchase from you.
It’s also a good idea to consider your audience. While you may have one target audience in mind, your products and services may be picked up by a niche you could never have imagined. On the one hand, it’s great to generate surprise profits, but on the other hand, you may feel it jeopardizes your vision.
To become recession-proof, small businesses owners need to understand when to pivot toward an alternative audience. This adaptability can save a business and enhance it in ways that may have been previously unconsidered.
Take the scenario that you supply top-notch art supplies. You aim to create the image of a chic boutique for hipster millennials with global tastes. Instead, your main sales come from retired women and primary school teachers. In a circumstance like this, you’re expending unnecessary energy on a less responsive audience because you’re sold to your original vision. Rather than ignoring these new niches, divert your time, money, and resources into these more profitable audiences. You may find, for example, that elderly women have more disposable income, and that schools have greater budgets and quantity needs on a more regular basis. In this case, both opportunities make better business sense than the odd pedantic art student!
To capitalize on your best target audiences, look at the data from your sales. Build a profile of your average customer – age, location, hobbies, occupation, payment method, favorite products, the average amount spent, etc. Next, use this information to directly target your audience with marketing and advertising – think promotions, content, price points, graphics, and other hooks that spearhead these new target audiences.
In short, you need to pinpoint the strengths of your business. Use these plus points as leverage spots to enhance your company’s future trajectory. Find out who your customers are, what they like, and how they like it – then do more of that! Don’t forget to test concepts and measure their feedback to see what’s working, otherwise, you’ll be trying out new ideas with no sense of their effectiveness.
Hire Better Customers and Charge More
As entrepreneurs, it can be all too easy to fall into the trap of taking in all available work. While some clients are respectful, pay well, and provide clear direction, other gigs can be time-consuming and low paid.
In general, when providing products or services, customers are looking to save time and/or money, or they’re in search of a skill they don’t possess to a high quality.
In this sense, small business owners should be charging the price it costs to solve the customer’s problem, rather than a per hour/seat/unit/etc.
When a plumber fixes a flooded kitchen, they charge a high amount because of their skill level. They know that the customer doesn’t have the skill to fix the problem or the time to learn the skill. The flood must be fixed quickly and skillfully, and therefore comes with a high price tag. While you can find a cheap plumber or a plumber who will do it quickly, often this means skipping on quality, and the leak will likely return.
As a service, you should be pricing on a similar spectrum. If you’re solving a problem that would be expensive to a client, needs to be solved quickly, or needs to be solved to a high quality, don’t be afraid to up your prices.
The lower-paid jobs should allow you excessive time or be super easy for your skill level. If this isn’t the case, get rid of these gigs and make way for new, better customers/clients.
For small businesses providing products, you’ll find that high-quality products, exceptional service, and long-lasting products tend to command the highest prices. In this sense, focus on customers willing to pay top dollar for one or more of these aspects of your product, and forget about the low-hanging fruit.
In other words, fire the customers and clients that give you hassle, time up unnecessary time, have unrealistic demands, and/or pay low. When looking for new customers, identify their problem and price yourself according to the value you’ll bring by solving that problem – rather than by a discrete rate.
As a small business, charging high also helps you to become recession-proof by adding wiggle room on price without affecting your cash flow. By charging higher, you cover all your current expenses and gain more profit. If a recession hits, you have room to drop your prices to encourage new customers or reward loyalty, without those promotions eating into your budgeted expenses.
Know Your Enemy
Generally, marketing spans 3 major areas that customers tend to focus on: price, product, and service. It’s been shown that businesses tend to succeed when they excel in 2 out of 3 of these areas.
To usurp your competitors, small business owners need to identify the immediate direct competitors and explore how they fare in the 3 key areas. Start by focusing your own efforts on the 2 areas they’re weakest at.
If your competition provides a top-quality product with low prices, try providing a better quality product with outstanding services and aftercare. Perhaps your competitor offers great service on a budget – offer a better product for a lower price with self-service options.
By doing this, you can more effectively divert funds and resources to targeting a parallel customer audience, without having to vie directly for the same competition.
Imagine supermarkets competing for home delivery to old aged people. No matter how low they drop their prices or how wide their selection of products, no older people order home delivery online. Closer inspection may show that elderly people need a better customer service alternative to the smartphone ordering app, which they find overly complex. By working on the service aspect, supermarkets could target this untapped audience without major competition.
With such uncertainty in our midst, designing a recession plan for your small business is vital. Understand that the most effective recession-proofing techniques encourage flexibility and adaptability in your business. By analyzing the various components that make up your company’s system, you can identify leaks where you’re losing money – installing fixes to patch these weak points.