4 Tips for Small Business Owners as They Navigate an Economic Downturn
Here are four tips that can help any small business owner navigate an economic downturn.
For entrepreneurs, talk of a recession should be cause for measured concern and thoughtful preparation. A struggling economy can produce a business environment that generates fewer sales, cash flow issues and a threat to the prosperity of small businesses. Additionally, the repercussions of an economic downturn may be felt more acutely given the stress businesses have been experiencing during recent years, as entrepreneurs have been navigating the pandemic, the ongoing economic shockwaves of inflation, labor shortages and supply chain issues.
Here's the positive news: It's possible to prepare for an economic downturn. According to a recent survey of entrepreneurs from Bank of America, more than half of U.S. business owners have taken steps to address future business risks following the pandemic. Whether you're feeling confident about your prospects but want to sure up your bottom line, or you're concerned about how the next few months may impact the success of your business, here are four tips to help any business owner navigate an economic downturn:
1. Conduct a SWOT analysis of your business
Taking the time to step back and evaluate your business on a recurring basis is always wise, and it's especially important during times of economic uncertainty. Set aside time to sit down and conduct a SWOT analysis by reviewing the strengths, weaknesses, opportunities and threats of your business to determine key areas to focus on and fortify. There are plenty of online tools that can help you conduct a SWOT analysis, including this free worksheet from SCORE that provides a template to evaluate all aspects of your business and directional prompts to help you consider your goals and next steps.
In addition to focusing on the next steps for your business, evaluating your competitors can also help you uncover any missed opportunities or potential advantages to explore. Can you strengthen your online presence and branding? How do your customer loyalty offerings compare? Focusing on details like these can help your business stand out amongst the crowd.
2. Prioritize customer loyalty and consider long-term community impacts
Times of economic distress are difficult for everyone, but they don't last forever. Managing expectations and being transparent with your customers in the short-term is critical to preserving your relationships in the long run. If items are out of stock, delivery times are delayed or working hours are reduced, make sure you are clearly communicating updates with your clientele. Promote positive news as well — if you're running a promotion or offering a new service, make sure customers know, so they can take advantage of the offering.
Prioritizing transparency and forthright communications with your customers will help you maintain relationships and potentially even create natural ambassadors for your business. Word-of-mouth can be your best marketing tactic, and as budgets tighten, building awareness and trust through grassroots marketing is more important than ever.
While keeping customers happy is crucial, don't lose sight of the bottom line. It may be tempting to slash prices to avoid rocking the boat, but keep in mind that any knee-jerk price cuts could impact your long-term profitability and leave you in a tough position to continue serving your customer base when the economy reverses course. Consumers are willing to pay higher prices for excellent customer service, so if you are delivering on your promises, your prices should be consistent with your service.
3. Focus on your cash flow
During economic downturns, cash flow is everything. Take time to review your business plan, insurance policies and books, and update your operational budget. If you anticipate a need for funding, make preparations to secure financing before you're hard-pressed for time. If possible, negotiate with your vendors to see where you can cut costs, or consider sourcing additional vendors to diversify your pipeline.
If you haven't worked closely with a financial institution in the past, consider strengthening your banking relationships. Be transparent about your financial position with a business banker, and seek their feedback on your business plan and outlook, as well as financing options like business credit cards, loans and other alternative funding sources. Your banker can be a key partner to help you manage the curveballs inherent to economic downturns.
4. Get creative and adaptable
The challenges created by a recession can be stressful and difficult to manage. However, an unstable market environment can also breed innovation. If your business is well-positioned and you have enough of a cash cushion, now may be the time to explore and test new revenue streams. This could mean pivoting your business to serve essential needs in your community, where consumer demand is likely to grow.
Innovation doesn't just include new business ventures or revenue streams. Flexible business owners can tap into short-term solutions with resources they already have to meet community needs. For example, consider collaborating on programs with other local businesses, launching new loyalty programs, revamping your website and social media to be more user-friendly or conducting a customer survey to gain clear insights into what they want the most.
Lastly, if you haven't already, ensure your business is operating as efficiently as possible by taking advantage of the latest digital tools and services available. Managing your operations online or through mobile apps can help streamline your finances, and accepting more forms of cashless payments can simplify your customers' experience and lead to greater satisfaction levels.
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