A recession is looming - now is the time to act

Once lockdown is over and business starts up again there are strong indicators that we are heading into recession and a long one at that. As a small business owner, you will be forced to make drastic moves to survive. Here are some tips on how to survive. Prepare for the worst and assume this turbulent is going to last and that we are nowhere near the ‘bottom’.

The key to survival is cash flow and there are four key ways to achieve this

1. Reduce and slow down cash going out - imperative
2. Increase and speed up cash coming in – easier said than done you will be thinking.
3. Position your business for a recessionary environment.
4. Get staff to become more productive than they’ve ever been. Engage now with them and tell them what you are planning

Reduce and slow down of cash out of the business.

The first step is to cut or reduce your monthly cash expenses

1. Rent

Speak to the landlord and negotiate a lower monthly rent. Sign a longer term lease in exchange for the lower rent if you have to. Your landlord is running a business too, and they would rather have you stay at a lower rent, than to have the space be vacant for months. Point out that it’s better for both of you if they lower your rent.

2. Get a discount on utilities.

The options on the marketplace are huge and now is the time to take those pesky cold callers trying to flog you a whole array of utilities. Speak to your current suppliers and see if they can offer a better tariff and tell them you are shopping around. Speak to utility specialists – they know the market and can save you time and money.

3. Cut wasteful discretionary spending.

These are the newspaper and magazine subscriptions that were a nice perk during the high-revenue years, but now nibble away at your bottom line. Check for automatic software and online platform renewals. Change them from automatic so you can make a sound judgement on their effectiveness.

How effective are your networking clubs? If they generate business, great. If they are just a nice place to meet pals, consider stopping.

However, this does not meant cutting cheap but moral boosting expenses like cake for birthdays. Right now you need your employees to rally around the company’s survival, and a cake a month to keep morale up is well worth it. In the same vein, productivity boosting expenses like the coffee machine or a well-stocked snack bowl are relatively small expenses where the benefits in employee productivity far outweigh the costs.

4. Lease rather than buy. (Or buy used.)

Need a new computer or office furniture? Lease it instead of buying. You will end up paying more in the long run, but in a down market, it’s all about cash flow. If your business runs out of cash in 6 months, it won’t matter that you paid less for that desk by paying the full amount up front. When survival is the issue at hand, you unfortunately won’t have the luxury of doing things the “optimal” way.

It might also be worth the effort to find more options of getting your equipment ; refurbished IT equipment can save a packet and often comes with a substantial guarantee.

Speak to your accountant about perhaps consolidating your leasing and about grants and low interest loans that are on the market as well.

5. Pay payables later.

Call your suppliers and get better terms. For example, you may be able to get 45-day terms instead of 30-day terms. Having cash on hand for an extra 15 days may be crucial in your survival.

While you have your suppliers on the phone, and especially if they won’t extend your terms, see if they will give you a small discount for paying early. 1-2% off for paying within 10 days is a typical example. Consider using a charge card to further extend your payables. For example, if you have 30-day terms with a supplier, you could effectively extend those terms to 90-days but remember to pay off the card in full or you will end up with ridiculous interest charges.

Increase and speed up cash inflows.

After slicing your expenses and cash outflows, the next step is to increase and speed up the inflow of cash. Like many other businesses, you may be facing plunging revenues. Here are tips for turning that trend around.

6. Collect receivables sooner.

Get cash in hand by offering your customers a discount for paying sooner. A common discount is 1-2% off for paying within 10 days instead of the normal 30 days.

Make sure you’re only offering terms (basically, free credit) to your best customers. You’re not running a credit card company.

Stop giving your customers free credit at the expense of your company’s survival.

Be firm about collection. In the good times, it’s easy to let a customer slide on paying their invoices on time. But you don’t have the luxury of floating free credit to your customers any longer. If the customer is having trouble paying all their bills, you are probably competing with other collectors. Get to the front of the line by persistent. (It goes without saying that you should be friendly, courteous, and understanding while firmly following up on outstanding payments due. You do want to keep their business, and using strong arm collection techniques won’t help that cause.

7. Keep your existing customers.

Don’t cut so much of your business expenses that you can no longer service your customers. Now is the time to remind your customers why they chose you in the first place. If it’s because you’re the most cost-effective, remind your customers that your low prices are even more important during the recession. If you’re not the cheapest, but you offer a premier product or superior customer service, remind your customers of the exceptional value you offer — and that price may not be the most important factor when determining total cost of ownership.

8. Double-down on your best customers.

Call, email, or better still, send a card to your best customers. Tell them you appreciate their loyalty and continued patronage. Ask them to come to you if they have any concerns and are looking to jump ship. Let them know you’re willing to work with them to keep their business. Sign a long-term contract if the opportunity arises! Offer to buy them lunch or a cup of coffee to discuss your current and future relationship. It’s a lot harder to “fire” you when you’ve met face-to-face and they know you’re also concerned about their needs.

Position your business for the recession.

The business environment in a recession is very different from the good years.  Consumers spend differently, which forces you to adjust accordingly.  Here are tips for making those adjustments.

9. Lower inventory costs.

How much cash is tied up in inventory? Do you really need to have 100 units of every product sitting on your shelves, waiting for the big order? You may be able to reduce the amount of inventory you’re holding, and free up much needed cash. Can you increase the frequency of deliveries (and lower the size of each shipment) from your suppliers? That will allow you to stock fewer units on the shelves and keep more cash in your accounts. While you’re considering your inventory, maybe now is the time to liquidate the worst selling products.

10. Revamp your product line or marketing campaign.

Consumers spend differently in a recession. They expect more value from purchases. Position yourself as a great value, and you’ll outlive the recession.

Note that “value” is not the same as “low price.”  It’s tempting to slash prices to drive more demand, but that’s not a sustainable practice.  Someone else will always be willing to lose more money by making deeper price cuts.  Make drastic price cutting the very last tactic you use.  Instead, change your marketing message to highlight your amazing value.

11. Look for opportunities to leapfrog competition.

Your competitors are in the same boat as you. If you can swing it, this is a perfect time to launch a new initiative, take market share from your rivals, and put yourself in a position to accelerate through the recovery. (Think of it like stepping on the gas to accelerate out of a turn.) Now is the time to up your business networking. Not only can you get advice from other business owners, but staying abreast of news and gossip gives you invaluable knowledge on what’s happening in your industry.

Your Staff

People are often the most expensive part of running a small business. Of course, employees are also the source of much of the value of your business. Slashing labour costs while boosting employee productivity is not easy to pull off.  However, businesses that manage it are the ones that will survive  Here’s how you can be one of those businesses.

12. Cut once, cut deep, and do it sooner than later.

Layoffs are not nice for anyone, but sometimes they’re essential to the company survival. If you do have to make redundancies, make sure you cut deep enough so you don’t have to do it again in 6 months. If you make a shallow cut and tell the remaining employees there may be more to come, everyone will be scared for their job.  A jittery team is not an effective team.

If you foresee layoffs coming in the near future, do it sooner rather than later. That conversation will be painful, but getting it over with soon has a couple of big benefits:

1) You can afford to offer a bigger redundancy package

2) The remaining employees can stop worrying and everyone can get back to working on turning the company around.

13. Reduce hours before reducing salaries.

This is potentially an HR minefield so take advice from an HR professional before making any moves to reduce hours and thereby perhaps compromise staff contracts. However, do think about the impact of shortening the working day by half an hour, increased holiday time or perhaps this is the time to offer an unpaid sabbatical. The government furlough schemes won’t go on for ever so now is the time to plan.

14. Cut your own salary.

You must cut (or even eliminate) your own salary before you cut your employees’ salaries. If they don’t see that you’re sacrificing more than they are, it won’t matter that you’ve saved 20% in employee salaries — you’ll see a 50% reduction in productivity. That means you’ll actually be paying more for those employees because of the reduced productivity.

15. Get everyone on the same page.

Be open with your employees. Cultivate an attitude of “we’re going to weather this downturn together.” Go ahead and show them the books (or at least an overview) so they can see that ugly chart of dwindling (or heaven forbid, negative) cashflow. Don’t be afraid to say “we all need to be 10% more efficient and 10% more productive (ie., make 10% more while spending 10% less), or else none of us will have a job in 6 months.” Just including them in the problem solving process is often enough to motivate them to give that extra effort during tough times.

Invite their input and listen to their ideas – they mght actually have some really good ones.

Keeping your business afloat during the coming downturn/recession will be hard, but not impossible. Have realistic goals and plan for being in survival mode for perhaps 2 or more years (not just the next few months). Cut deeper than you think you need to because it will be worse if you have to go through this process again in 6 months.