With the economy thriving, a low unemployment rate and jobs being added, many business owners haven't had to worry about raising capital or managing cash flow for some time now.
Other barometers of how the economy is doing are also promising: The July 2019 International Monetary Fund forecast the American economy to grow this year at 2.6 percent, up from an April forecast of 2.3 percent, and, that same month the Bureau of Economic Analysis highlighted increased "personal consumption expenditures" having a positive effect on America's GDP.
But plenty of people worry that it can't last forever. While there's probably no point in fretting too much what the future holds, it doesn't hurt to think about what business owners can be doing now while times are good.
I asked some entrepreneurs and experts that very question, and a clear theme emerged: Do what you can now to make your business stronger, in case the economy does hit a rough patch later.
1. Diversify your revenue stream.
Jason Parks is the owner of The Media Captain, a digital marketing agency based in Columbus, Ohio.
“When the economy goes south, marketing budgets typically get slashed. I always keep this in the back of my mind during the good times so I can keep cash in hand when times aren't as good," Parks says.
But he has also diversified his revenue stream, which helps with cash-flow management.
“I've started two other businesses since opening my marketing agency in 2010, [DermWarehouse,] an e-commerce skin care and beauty site backed by a dermatologist and a local entrepreneurial publication in Columbus called Entrepreneurs of Columbus, where we feature other entrepreneurs," Parks says.
“The e-commerce business has grown to nearly $2 million in revenue and keeps my business portfolio more diversified in a down economy," he continues. "The publication isn't making money yet but can be a nice revenue generator once we incorporate events and public speaking into the strategy.
“I recommend diversifying during the good times while not losing focus on the business that's generating you the money to invest in other projects," Parks says.
Having these different revenue streams may become very important if one day, marketing budgets are once again routinely slashed.
Keep in mind you don't have to raise capital to create entirely new businesses. But maybe now is the time to invest in new product lines or new services, so you have more revenue coming in. It may help make your company more formidable over all.
2. Make sure you have credit available, in case you need it later.
“As a business owner and podcast host who has interviewed over 200 successful entrepreneurs, the most important thing I've learned is the importance of asking for money when you don't need it," says Josephine Geraci, founder and president of My Mom Knows Best, Inc., based out of Huntington, New York and manufacturer of Glovies, disposable, multipurpose gloves for kids.
“Yes, it may sound strange, but when you don't need money because your financial numbers look good, everybody wants to lend you money," Geraci says. “But when the economy turns and you really need to borrow money because your business is experiencing a lull—well guess what? That's when it becomes really hard to find money."
Always pay down debts while times are good. Mortgages, business loans, credit lines, whichever has the highest interest rate gets top priority.
—Evan Alonzo, public accountant and tax attorney
When the economy goes sour, the banks start asking uncomfortable questions, she says.
“Banks will wonder why your numbers have decreased even though it may be obvious that the economy has changed," Geraci says. “So think ahead and stockpile your cash for when times start to slow down."
Or if you know you're going to be raising capital for an eventual project, do it now, while lenders are in a good mood.
"After all, every business experiences cycles," Geraci says. "You have upticks and downticks."
3. Do your bargain hunting now.
Andres Lares is a managing partner at Shapiro Negotiations Institute, a negotiations training firm that was founded in 1995 and is based out of Baltimore.
Naturally, he has some expertise on negotiating and thinks now is the perfect time to do it. That might mean analyzing your budget and seeing where things can be improved.
“Since there is less pressure to cut costs immediately, there is more time to be thorough and review supplier and vendor agreements, [and] consider changes and renegotiations," Lares says.
Just like it's smart to be raising capital during a healthy economy, Lares says that this is a good time to work things out with your suppliers and vendors. After all, they are doing well, too. So if you do feel like you need to ask for a better deal, you may want to do it when everything is going well and not at a point when partners may not have the leeway to cut costs for you.
You may find other bargains in other ways, too. Geraci says that when times are good, she tends to buy more inventory than she necessarily needs.
“If the business lags just a little, it's nice to know we have plenty of stock," she says.
4. Pay down your debts.
Evan Alonzo is a San Jose, California-based certified public accountant and a tax attorney who works with a lot of small businesses.
“When times are good I see the same pattern of behavior—clients run out and buy toys when they should be paying down debt," he says. “My advice is always pay down debts while times are good. Mortgages, business loans, credit lines, whichever has the highest interest rate gets top priority. Right now, interest rates are very low, so I advise clients to consider refinancing debts."
If you have trouble raising capital in the future, it may have nothing to do with the economy and simply be due to rising or lingering debt.
5. Invest in yourself and your business.
Ben Walker is the CEO for Transcription Outsourcing, a transcription service based out of Denver. He thinks it's smart to prepare for tough times by doing things like raising capital and working on getting larger lines of credit, but also has an additional piece of advice.
“Without a doubt business owners should be investing in themselves when times are good," Walker says.
He suggests taking classes, like public speaking, “or the webinar presentation class you keep saying you should do."
You may also want to consider investing in your company's infrastructure. This would be a good time to invest in “your 10-year-old servers that still kind of work," Walker says. “Invest in things now that you would consider luxuries when times are tight."
The idea is to make your business stronger than ever—right now—so you're still a force to be reckoned with if the economy does take a turn for the worse somewhere down the road. If and when that time comes, you and your employees may hardly miss a step while your competitors stumble.
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