Preparing Your Business for April Showers
How to Weather the Hard Times
You’ve put in the long hours needed to establish and grow your business. But no business follows a perfectly upward trajectory throughout its entire lifecycle. Markets shift, economies stagnate and changes occur in your personal or professional life.
Here’s how to weather-proof your business for tough times to come – and how to wait out that inclement weather when it does hit.
Know your boom and bust cycles
Some businesses are strictly seasonal, while others do a solid trade year round. When starting your business, know your industry well enough to determine where your cyclical ups and downs are likely to occur – and plan accordingly. If you run a nursery, look into selling Christmas trees in the winter months. If you’re an accountant, make sure you have extra staff to help out during tax season.
You’ll also want to be aware of the longer-term trends in your industry. In an economic downtown, counter-cyclical businesses like grocery stores, repair services and pawnshops do well. In a strong economy, extra disposable income means that people are more likely to spend on non-essentials like entertainment and dining out.
Learn the cycles of your industry, and factor them into your business model – and contingency plan.
Build a solid safety net
Most Americans live paycheck to paycheck. But that’s no way to run a business. Staying solvent is one of the biggest challenges for small businesses, with most failing to make it past the first two years. Maintaining positive cash flow is essential – and so is building up a cash buffer for those leaner months. Adjust your payment terms to encourage fast, on-time payment, monitor your margins, and diversify your revenue streams.
Debt can quickly destroy a safety net, so pay down your loan lines or debts as quickly as you can and keep them to a minimum. Hold on to your money as long as you can, and be cautious of the spending inefficiencies that go hand-in-hand with growth. Consider reinvesting your profits back into your company for added security in the future.
As a rule of thumb, you’ll want about 3 months’ operating expenses in the bank (in cash!). Seasonal businesses may prefer to have a larger buffer to see them through the leaner months. Having that buffer allows you to act as your own bank, rather than relying on credit or taking out loans elsewhere.
Know the signs of trouble
Prevention is better than cure, so be vigilant about identifying smoke before it becomes a forest fire. If you’re buying on credit, struggling with staff turnover, delaying supplier payments or watching profits dwindle, something’s going on. Keep a close eye on your business so that you can readily identify when you’re creeping beyond the risk parameters that you’ve set. Once you’ve spotted a warning sign, have a contingency plan to handle it.
If you’re struggling to meet payroll, consider cutting back to a skeleton staff supplemented by VAs or temps. If revenues are up but profits are down, find and plug the leak. And if overall demand is down, take a look at the market. Is the problem to do with the wider economy, or do you need to reconsider the products and services you’re providing? A quick, responsive pivot may just be what you need to regain traction.
Don’t go underground!
It can be tempting to go into hiding and wait for the worst to pass. But turbulent times are when your business needs you the most. Now’s the time to push forward and cement your place in the market – and with your clients. (As the incomparable Warren Buffett says, be greedy when others are fearful.) Protect your cash flow, double down on your core competencies, and make client outreach a priority. Your existing clients are the most important – they’re the ones making your positive cash flow possible – so strive to keep them happy and locked down.
Then look to expand your customer or client base. Ask for referrals, strategize ways to snap up your competitors’ clients, and continue to network and market (just do it on the cheap). Prioritize customer service and see how you can provide added value that differentiates you from the competition. Go after the clients you want – but give them a reason to shift their loyalties to you.
Learn from your mistakes
Some business challenges are beyond our control. They’re the result of invisible market forces or a technological blip that no one could have foreseen. But sometimes they’re of our own making – decisions that didn’t pan out right, expensive R&D that went nowhere or an inability to see the forest for the trees.
That’s okay. Sometimes you have to go through it learn from it. Just make sure that you do! Once you’ve got through it, take some time to reflect on what happened and how you can do things differently next time. Because experience is what feeds our business instincts – and helps us weather the next storm!
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Coppell, TX 75019