Based on my anecdotal findings on the state of the economy, many businesses are seeing something like a 15% drop in business over last year. While the government is dithering over what to call the downturn, most of us are feeling it. Some see that customers are making purchases about as frequently, but they’re spending less. Unit sales are down. Or for some, clients’ budgets are contracting and they’re passing the squeeze on to your business by canceling contracts.
It’s like a rock dropped in a pond sending ripples out to all shores. Or an eartquake sending a tsunami over thousands of miles of ocean. So what, as a small business owner, do you do?
There are really just two types of things that can keep your business afloat in tough times. You can cut costs or find ways to keep revenue up. If you can’t keep your cash flow positive, or at least neutral, it’s going to hurt your business, perhaps fatally.
- Cutting costs – Take a hard look at the way you have spent money in the past. If you have employees, one big expense is payroll, a tough one to cut. There are other recurring expenses, some of which you can’t do without but might be able to reduce. You have cost of goods if you make products, but it’s risky to cheapen your products. Take a good critical look at where you can cut back without jeopardizing revenue. If you have employees you value, perhaps you can reduce their hours instead of laying somebody off. And talk to your employees; they may be closer to operations than you are and can see ways to reduce costs.
- Maintaining revenue – Is there something you can do to increase revenue or hold it steady? Here’s where understanding your customers could pay off. Are customers cutting back on spending but would consider buying a simpler version of what you usually sell? If you have been selling “bundles” they can no longer afford, would they buy the basic option if you unbundled the package? Better to have a smaller sale than no sale. But be wary of discounting your offers; you need to know what your costs are so you know if you’ll still be selling at a profit.
Keeping your cash flow healthy will let you survive a downturn. Be careful, but be smart. Continue to spend judiciously on what will definitely keep the revenue coming in. Not sure? Talk to customers about what matters most to them.