5 Financial Tips for Businesses During an Economic Downturn
Periods of financial insecurity can be troubling for anyone, especially for passionate entrepreneurs owning and operating a small business.
For many businesses, turning a profit is the primary purpose, and that can be extremely difficult during periods of economic turmoil.
From customers buying fewer products due to their finances to increased payments or bills, keeping steady and ensuring you plan for the future is essential.
As businesses of all sizes from across the globe continue to look for new ways to rise above the competition during these challenging times, it can be exhausting and overwhelming for entrepreneurs.
In this article, we decided to take a “back to basics” approach and help struggling businesses take a step back and evaluate their current circumstances.
Here are five financial tips for businesses during an economic downturn to help them ride it out or thrive.
1 – Know what resources you have available
During a slower period or one of less financial stability, it’s always important to know what options you have at your disposal should you require assistance.
Although ideally, you wouldn’t have to tap into any of these resources or possibilities, having that information is crucial should any situation arise.
There are a few popular ways that small businesses have been able to weather economic downturns:
- The Paycheck Protection Program (PPP) was “implemented by the Small Business Administration with support from the Department of the Treasury.” Although these loans come with certain restrictions, meaning you typically can only use the money to cover things such as rent, utilities, or employee salaries, they are offered to a wide variety of businesses and often come with either generous payment plans or, in some cases, options for loan forgiveness.
- Depending on the size of your business, you can evaluate what personal assets you can leverage to fund your business. Many small business owners may overlap their personal and business finances too much and cause issues down the road, so it’s vital to lay out a plan beforehand. From longer-term strategies, such as putting money into various portfolios or bonds with a consistent return rate, to shorter-term ones through loan or mortgage refinancing, utilising your finances can benefit your business when done appropriately.
- Crowdfunding has been successful for many organisations, but knowing which type is best for your business is crucial. Since “by 2025, the crowdfunding market will be worth $300 billion,” there’s much capital to be gained through this method. Operating in a suitable space for your business could be very financially beneficial.
- Be flexible and willing to adjust your operations when necessary by taking feedback from your crew. Maybe it’s time to try out the latest workflow technology or implement some organisation methods to monitor your spending better. Talk with and listen to your employees, and be cognizant and understanding of their needs during this time. By accommodating your team’s needs more, you’ll have a better chance to maintain morale, leading to increased efficiency. Who knows? You might find that all of this thinking on your feet will lead to a healthier work environment filled with innovative changes from your employees. Remember that keeping the ship afloat is not always up to you.
2 – Put your customers first
Customer relationships are critical to the long-term success of any business, and these become even more crucial during tumultuous periods.
According to Bain & Company, “a 5% increase in customer retention produces more than a 25% increase in profit.”
This is simply because returning customers typically purchase more over periods, and your operating costs to serve them begin to decline.
A great place to start is by implementing customer feedback. No one knows your product or service better than those who pay for it.
Prioritising what customers care about your product or service will only help create a happier customer in the long run.
Don’t hesitate to do some trial and error here. The great thing about customer feedback is that you’ll know what’s not working as much as what is.
Since you are already opening the door for customer feedback, why not make it an even more personal experience?
Personalisation has proven to be another significant factor in people’s shopping habits.
An Epsilon study revealed that “80% of respondents [indicated] they are more likely to do business with a company if it offers personalised experiences and 90% [indicated] that they find personalisation appealing.”
The main reason to personalise is to build a relationship with your customers. If they are happy with you and your products, they are more likely to return and spread the word for you.
Customer loyalty programs are a great way to both develop a relationship with customers and, at the same time, reward them for completing business transactions with you.
Although rewards can vary, offering them the ability to gain from their interactions with your operation can help them feel engaged and rewarded.
3 – Make your finances as simple as possible
Keeping your money management as easy to deal with as possible during a tough financial time can help you reduce any financial conflicts you may have to worry about.
Cash flow is one of the most critical aspects of your business. In many ways, it gives you additional insight into your business’s performance instead of simply looking at profit.
A more in-depth look at the money coming in and going out can give you a better picture of actual business health than profit, which is an accounting concept, not actual currency.
Keeping your finances as simple as possible is crucial for small businesses to fare an economic downturn successfully.
In an article from The Hartford, a study from U.S. Bank shows that “82 per cent of businesses fail due to cash flow mismanagement.”
You must closely monitor your money as cash flow keeps the lights on, not your profit margin.
Use a money tracking app, a detailed spreadsheet, or even a list of necessary expenses. Are you spending enough on a high-quality brand design for your business? Are you spending too much?
Check your monthly budget to ensure you have a reasonable amount of funds for your various expenses and can keep a nest egg set aside to invest in your business’s future.
Taking the time to examine and prioritise your cash flow will save you some headaches.
You can also simplify your spending by creating a prioritisation list of your business needs.
Purchasing additional equipment when you have competent ones now may not be in your best interest, but investing time in standing out through brand differentiation might be worth the cost of outsourcing.
Can you streamline your workflow to cut back on overtime? Being more efficient might help decrease the general upkeep of your workplace while providing your team with reasonable hours for a healthier work-life balance.
Have you spent more money on morale-boosting lunches, company parties or other events?
As much as your employees might enjoy your methods of appreciation, these extra activities might be an added cost you cannot afford during this hardship.
However, you prioritise your company’s finances and consider your cash flow expenses and earnings before making significant decisions, especially during a difficult time.
If you need to make a difficult decision affecting your team, it’s best to discuss it with them beforehand or explain your reasoning. Regardless of the financial downturn, a business is only as strong as its employees.
4 – Increase the emphasis on accounts receivable collection
Similarly to cash flow, accounts receivable (AR) is another crucial aspect of your finances during an economic downturn.
When you do not have the luxury of waiting for late payments, it’s essential to make sure you closely oversee your accounts receivables to get paid on time to meet your financial obligations.
Although economic slowdowns will likely affect other businesses, managing your customers and potentially separating them into categories based on their payment likelihood is essential.
This can help you plan better when you are likely to receive your payments and allows you to focus on who you should follow up with.
Check your business transactions to see which credits are delinquent and harming your business bank account.
If you have a vendor or client frequently late on payments, especially those with more considerable sums, prioritise their resolutions first.
Offering incentives for early or on-time payments can help you increase the likelihood of receiving your money on time.
This can often act as a win-win, decreasing the customer’s overall payments and ensuring you get your money on time instead of being late.
Incentives are great for the client, customer or vendor who is also experiencing hardship as it lessens the lump sum responsibility typically owed at one given time.
Nothing is better than finding a compromise between your contacts and your business.
5 – Think twice before cutting your marketing budget
During an economic downturn, businesses often look for anything and everything they can cut to save money.
That is their marketing budget because it’s considered a non-essential cost.
Cutting your marketing budget is often a slippery slope, causing you to lose potential new customers, have existing brands begin to overshadow yours, and have a general loss of income.
Instead of eliminating your budget, try shifting it to more productive outlets like investing in your business as a brand. Think of your customers: do they see how unique your business is from your logo or letterhead?
Are you focusing on the importance of content marketing and driving the necessary traffic to your business?
Organic search on Google is quickly becoming one of the most significant and impactful drivers of website traffic, meaning that digital marketing is highly profitable and vital.
According to the Google Economic Impact Report, organic search organisations “receive 5X as much value from Google Search as they do from Google Ads.”
This means you get more value by not paying for ad space and instead utilising your resources to write quality content that can rank organically.
Creating engaging and more personalised content often means that you can spend less money compared to more extensive and blanket advertising plays.
By investing time into a more targeted audience, you can reduce costs while increasing your conversion rate due to the attention to detail and personalisation many customers love.
Although each business has a unique approach to dealing with financial hardships, these tips can come in handy to make sure your business stays in the black.
Understanding what resources you have at your disposal in times of need can help you react quickly and effectively.
Putting your consumers first means maintaining a solid and loyal customer base. Keeping your finances hassle-free can help you meet financial deadlines and focus on what needs it most.
Increasing the accountability of your accounts receivable can help you plan your pipeline while tapping into more affordable and effective marketing methods can save you money and make your efforts more impactful.
No matter how complex your current hardships are, there are still many ways to be financially responsible while maintaining your brand identity through marketing, customer engagement, and prioritising your cash flow.
Consider these financial tips during periods of economic downturn to help you write your business and continue to grow without missing a beat.
Wrapping up the Financial Tips
In conclusion, navigating an economic downturn can be challenging for any business. However, companies can survive and thrive in uncertain times with the right strategies and a proactive approach. Businesses can emerge more robust when the economy recovers by maintaining cash reserves, cutting costs, diversifying revenue streams, renegotiating contracts, and staying agile.
Remember, the key to enduring an economic downturn is adaptability and resilience. Business owners must be willing to evolve and make the necessary adjustments to stay competitive in the market. By embracing these five financial tips, businesses can build a solid foundation that will not only help weather the storm but also set the stage for long-term success and growth. In the words of Benjamin Franklin, “By failing to prepare, you are preparing to fail.” So, prepare now and ensure your business stands tall in adversity.
