The economic outlook doesn’t look great, and many businesses, regardless of their size, will have to make difficult decisions over the coming months. The majority of consumers and companies are looking to spend less at the moment, and it’s harder to find sources of credit to manage cash flow and expand operations.
For many SMBs, this is their first time going through a recession. They need to find ways of adapting to tighter budgets and navigating the new market. So what can they do to survive the downturn and position themselves to come out the other side in a strong position?
When less money is being spent and lent, businesses quickly see diminishing returns. There are two sides to the equation businesses can work on: cutting costs and maintaining and growing sales. Listed below are tips for SMBs, divided into these two categories.
Cutting costs
Reducing outgoings and focusing on your cash reserves is vital in the build-up to a recession. You need cash on hand to cover payments, while your revenue may be reduced or less consistent.
Ensure you have an easy bill-paying service for SMBs, and go through your current invoices to work out where you can cut costs without significantly affecting your operations. Ways to cut costs include:
- Halting future recruitment processes.
- Reducing travel budgets.
- Downsizing office space or facilities to save money on rent, equipment, and utilities.
- Replacing paid services with free or lower cost alternatives. An example is reducing your software spend.
- Consolidating debts and finding a payment plan with improved conditions.
Listed below are three cost-saving tips beyond direct budget cuts:
1. Streamlining business processes
A recession is a good time to audit your internal business processes and identify inefficiencies. Every business has some form of waste, from staff duplicating work to failing to maximize inventory and more.
By taking the time to better understand your operations, you can find ways of improving processes and optimizing the output from all your resources. Perhaps there are workflows that could be enhanced through new technologies and the automation of repetitive tasks.
2. Outsourcing over hiring
As your business grows, the natural inclination is to hire new people to diversify the business’s skills and take on the additional work. However, hiring new staff brings significant expenses beyond just the salary.
Unless you already have a person in mind, you’ll need to spend time advertising the position, then take the time to review and interview the top candidates. Additional costs include benefits (i.e., bonuses, insurance, pension, etc.), training, and buying equipment for the new hire.
Instead of jumping into a new hire, businesses can make the most of freelancing networks to find people with the skills they need without the extra costs. Want a bookkeeper or accountant to help with your taxes? Hire a freelancer during tax season, and only pay for the work you need. Want to rebrand your website? Find a freelancer with the knowledge and skills to redefine your online presence. Nowadays, businesses no longer need to hire a full-time employee for every skill they don’t have.
This idea goes beyond hiring freelance staff, with businesses choosing to outsource their IT services and infrastructure to the cloud, paying a monthly fee for what they use rather than dealing with the large overhead costs of investing in IT equipment. The resources (and therefore fee) can scale to match your needs, so you pay for exactly what you need, no more, no less.
3. Renegotiate with suppliers
Most businesses have long-term relationships with several suppliers. A recession is the ideal time to renegotiate those relationships. Suppliers are often willing to offer concessions for consistent business. Plus, if you streamline your accounts payable to a smaller number of suppliers, increasing the value of each order, you can put yourself in a stronger negotiating position.
Maintaining sales or even growing during a recession
A business that maintains sales or even finds a way to grow during a recession will emerge a lean, profitable machine ready to expand operations. So what can you do to give yourself the best shot at keeping the money rolling in during a downturn?
1. Try not to cut marketing
It’s tempting to slash marketing budgets during tough times. However, cutting your marketing budget cuts off your lifeline – new customers. Long-term customers are great, but without a steady stream of new customers, you are left with a stagnant revenue stream that will only move in one direction.
2. Emphasize customer service
When customers are looking for any reason to reduce their expenditure, don’t give them an easy out through poor customer service. During a recession, every aspect of your business becomes a way to differentiate yourself from the competition. Great customer service and building relationships lead to satisfied consumers willing to continue paying for your product and maybe even recommend you to others.
3. Target your competitors
Business is a dog-eat-dog world. With less money being spent, not every business is going to survive. It can sound predatory, but an effective way to make it out of a recession is to ensure your competitors don’t. Research the competition, and learn what they do well and what they don’t. Focus on where you outperform them and target their customers to get them to switch.
Building best practices to do more than survive
Recessions are scary, especially for smaller operations with more concentrated revenue streams. It’s vital to remember recessions magnify successes and failures to separate the weak from the strong.
Generally, those that survive (and even thrive) when times are tough can accelerate when better financial times return.
Often recessions can help point out flaws in your business plan or allow you to cut the fat from your budget and reduce waste. These issues might have caught up with you eventually, and a recession can help you clean house and install new practices that will hold you in good stead moving forward.
