The financial turmoil of the last year threw a lot of things out of whack...and not just the overall economy. Small businesses are staring down a future that looks little like the past, with high employee health care and benefits costs, decreased cash flow and increased monthly expenses threatening business as usual.
Many small businesses may not make it. The Financial Times predicted in late 2008 that 62,000 companies would disappear in 2009, representing approximately three million people that would be out of a job by 2010. In 2008, 42,000 small businesses went under, up 20,000 from 2007.
The truth is, recession is a natural part of the business cycle. Whether a stock market recession or an overall economy recession, the end result is the same - businesses need to respond quickly and effectively in order to survive and thrive during an economic turndown. And as a business owner, that means understanding the ways your balance sheet will look different during the recovery and viewing your business plan in a new light.
A cash flow crunch means acute focus on marketing. Obviously, as the economy shrinks, the number of people able to afford or willing to invest in your products and services will decrease significantly. When people pinch pennies, they become exceedingly careful about their product purchases and investments; therefore, you can expect to have to work harder to make sales and may even have to lower prices a little to get more people in the door. You need to put a lot of focus into marketing and sales during a tougher economy and especially focus on low-cost and no-cost marketing techniques that will attract high-quality clients that really understand the value of services and products you provide. You need to find marketing techniques that will have high response rates among customers that want to establish long-term relationships with you and be reasonable to execute given your limited budget.Â
Overwheliming staffing costs will spark new structures for efficiency. One of the first things companies of every size have to think about in a recession is whether or not they can afford to keep all their employees. As you plan how to stay afloat, your balance sheet will be more focused on the total cost of each of your current employees - not only on their salaries but how much their health and other benefits cost. As unpleasant as the process is, reducing your staffing costs will be integral to the success of your business. The effects of the recession could also impact the morale of the staff you keep as they battle to pay their expenses on a limited income, so you have to balance what you can realistically afford to pay employees with their own requirements. Make a plan to create methods tohelp you better delegate business duties to different employees - or tame some tasks on yourself - so you are an efficient machine. During tough financial times, the small business that is lean and nimble is king.
Greater monthly expenses can be covered by opportunistic loans. A recession that is joined by high inflation means that your monthly expenses will most likely increase. And this cost swell will be challenging as you attempt to maintain your profits. If you don't watch your spending like a hawk, you will end up eating into your savings and face even greater financial problems as time passes. The good news is, once a recession moves past immediate crisis mode, a lot of banks and other lenders start to look at their own lending portfolios and start refresing their lending programs. A recession is often the best time to re-finance small business loans and even change banks entirely to get better rates and help keep your debt manageable.
One thing's for sure, business will never be the same again. If you are always looking a few miles down the road, you'll be better prepared to roll with the economic recovery process.Â
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October 02, 2009