PREPARING FOR ECONOMIC AND FINANCIAL BUSINESS DISRUPTIONS
As a start-up entrepreneur, I had to overcome a myriad of unexpected developments that frankly seemed like they were tailor made to finish my business. I faced internal issues such as competition, staffing problems, lack of planning and different financial issues. Externally, we had reduced customer confidence which obviously led to decreased sales and subsequently limited access to credit. Supply chain disruptions and travel restrictions were also some of the difficulties I encountered.
Having no other choice but to survive, I developed a few strategies for dealing with business disruptions and economic crises. I share this with you in the hope that they can be applied in your businesses.
Build a cash reserve that can be used to cover expenses during tough times and help your business stay afloat and avoid going bankrupt. For example, as a restaurant owner I had set aside a portion of my profits each month to build a cash reserve which eventually I used to cover expenses during financial crises.
To help your business weather a downturn if one source of revenue dries up, diversify your customer base so that you are not overly reliant on one source of revenue. A small retailer could, for example, start selling their products online in addition to in-store to diversify their customer base.
Identify areas where they can reduce expenses without negatively impacting their operations. A small business owner could cut costs by renegotiating his rent or utility bills, or reduce his inventory levels.
To stay relevant and competitive during tough times, small businesses should focus on their core strengths and areas where they have a competitive advantage. For example, a small software company could focus on developing software for a specific niche market where they have expertise.
Stay informed about economic trends and changes in the market to help you anticipate changes and adjust their operations accordingly. I know this to be quite helpful as I am subscribed to different industry newsletters and normally attend conferences to stay informed about changes in my industry.
It is important that businesses monitor their cash flow regularly in order to create cash flow projections for different scenarios and monitor actuals against projections. This can help you to identify potential cash flow issues early and take corrective measures such as reducing expenses or negotiating payment terms with suppliers.
During a financial crisis, retaining existing customers is crucial. You could prioritize customer service, identify and address customer pain points, and offer incentives to keep customers loyal. As a restaurant owner, for instance, I offered discounts to regular customers and provided delivery services to retain customers who couldn’t dine in.
You could cautiously seek out support from government programs, industry associations, and other organizations that can help them during an economic downturn. It’s important to research and understand the eligibility criteria, terms and conditions, and repayment terms of each option before applying. For example, during the COVID-19 pandemic, many governments offered financial assistance to small businesses affected by the pandemic.
For businesses with the wherewithal, they should review their business strategy regularly and adjust it as needed to adapt to changing market conditions. Your business may need to adjust its pricing, product offerings, or sales channels to remain competitive. For example, a travel agency may need to pivot to offer staycation packages or virtual tours during a pandemic.
Building strong relationships with suppliers, customers, and other businesses is a proven method to help small businesses weather economic downturns. Strong relationships can lead to better payment terms, more favorable pricing, and mutually beneficial partnerships. For example, as a small business owner, I joined trade associations and networking groups which helped me build relationships with other businesses in my same industry.
Some of these may not be applicable to your industry, but overall, I am confident that adapting these measures will position you in good stead for the unexpected economic downturns and financial crises.
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