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It’s been a hard year for our economy, and all signs point to a further economic slowdown, if not a recession. Small businesses are especially vulnerable during a sluggish economy as they can lack the diverse client base, cash reserves and other financial resources of larger companies.
The good news is that you are not merely a helpless bystander. The survival of your business does not have to be wholly dependent on the ups and downs of the economy. You have options to help your business weather any challenges the economy might have in store - and come out on the other side ready to thrive.
Reduce or restructure debt
It is not unusual for small business owners to finance the start-up or growth of their company with loans or other financing and when business income is steady or increasing, your business debt-to-income ratio may not be a cause for concern. But in a slowing economy you should evaluate your company’s debt carefully.
Make an effort to pay off high-interest, high-payment loans or credit cards. Look into options to restructure or consolidate debt that reduces how many institutions to which you owe money. It can also reduce the amount you must pay every month to meet your obligations.
Increase efficiency
Inefficiencies in your business operations cut into your revenue no matter how healthy the economy is, but during a downturn it’s more important than ever to do all you can to make sure your company is functioning at peak efficiency. Efficiency-increasing steps you could take include:
- Reducing the hours of marginal employees and letting nonproductive employees go
- Combining tasks, processes, or even whole departments that significantly overlap
- Reducing or eliminating the use of vendors or services that don’t help your business function efficiently
- Concentrating your time and effort on your most profitable customers and products
Speed up payment of receivables
Small businesses are often too lenient when it comes to getting paid. Adopt a stringent policy regarding payment due dates and communicate it to all your clients and customers. Consider instituting a late payment fee for invoices that are not paid by their due date. And don’t hesitate to contact a client about an overdue payment.
Sell off assets that aren’t having a direct positive impact on profits
Almost anything your business owns — from buildings to computers — is an asset. Take a thoughtful inventory of all your business assets and make a plan to sell any asset that isn’t actively contributing to your business success. That color copier you bought six months ago may be able to make 25 full color copies per minute. But if you rarely have a need to use it, it is deadweight that does nothing for your business.
Businesses that survive economic downturns are “lean and mean.” They operate at peak efficiency, make thoughtful financial decisions and are that much more prepared to take advantage of the economic upsurge that always follows.
Not sure where to start to prepare your business for the slow economy? Visit the Small Business Development Center — Olympic College (SDBC) in Bremerton. The SDBC’s certified business counselor, Rand Riedrich, can help you create a sound fiscal plan to keep your business financially healthy all year round.
(Editor’s Note: For Small Business Development Center (SBDC) counseling services and workshops contact Rand Riedrich at 360-307-4220, rriedrich@olympic.edu. For partnership opportunities or other information, contact Wendy Miles, at Olympic College at 360-475-7786.)
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