As a business owner, it’s natural to worry about a recession or a slowdown in your industry and how it may affect your business. In the current economic climate, there are many pressures that businesses are facing, such as rising interest rates, increasing commodity costs, and staff shortages. However, burying your head in the sand is not the solution. Instead, take action and implement these three simple steps to solidify your business, reduce the chance of financial failure, and take control of the outcome of your business.
Step 1: Increase your cash reserves
One of the most critical steps to protect your business during tough economic times is to increase your cash reserves. Having a nice cash cushion can help see your business through short-term slumps and help see your business through to the other side. For example, we recently worked with a business that had enough cash to cover 12 months of overhead expenses, including the owner’s wages. This gave them a massive sense of relief that they would be able to see through hard economic times.
Step 2: Reduce your costs
Reducing costs is another essential step in protecting your business during tough economic times. Consolidating debts, negotiating better rates with suppliers, and reducing staff costs are just a few examples. We recently worked with a business that had already forecasted a downturn in income over the coming months due to certain projects wrapping up. So we had to go through a process of reducing costs to correlate with that drop in income, just to make sure that the business was steady and would be okay. One of the measures they had to take was to reduce their staffing levels, which was one of the most difficult decisions they had to make. But if they didn’t let go of a handful of people, the rest of the business would have struggled and potentially fallen over, leaving every single team member out looking for a job.
Step 3: Review your income streams
Relying on one single source of income is risky for any business. It’s crucial to diversify your income streams to cushion the blow if you see some reductions of income in your main source. On the flip side of that, if you’ve got many income sources, you may look at reviewing each one and seeing how much they contribute to your overall profit and doubling down on the most profitable ones. For example, we worked with a business that was heavily reliant on property transactions. During the Banking Royal Commission and an upcoming election, people stopped buying and selling property, and they started to see a dip in their income. So we made them push their other services a little bit harder, put more marketing effort in, and added some more staff members to do some other things. Now they’re in a position where if that same thing happens and people stop buying and selling properties, they’re in a really good place because they’ve got other streams of income that can cushion that blow.
In conclusion, these three steps may seem simple, but they can have a massive impact on the survival of your business during tough economic times. Remember, taking action early is key, and keeping a lookout for signals that indicate that your business may be in trouble is crucial. If you’d like to solidify your business, reduce the chance of financial failure, and take more control of the outcome of your business, consider booking a 15-minute strategy call with our team. On that call, we’ll talk you through your current position, your goals, and give you a few simple pointers to help get you there.
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