Being able to future-proof your business can be seen as a superpower that many business owners wished they possessed. This is especially relevant now since it has been eight long years since the Great Recession ended in 2009.
With most recessions happening in eight to ten-year cycles, many business owners fear another dip could be coming soon. They want to know how to prepare for it. The following tips can help you financially future-proof your business.
1. Focus on profitability over growth.
Many business owners can become fixated on growing their business quickly. Unfortunately, it can come at the cost of maintaining profitability. In fact, it can even generate large losses that increase the company's vulnerability during lean financial times.
In order to future-proof your business, you may want to avoid allowing new invested expenses to get too far ahead of expected sales. Consider evolving carefully by ramping your business up at the rate that is profitable and allows a strong cash position to be maintained.
2. Diversify your revenue and customer streams.
Many companies get the vast majority of their business or profit from one set of customers or products.
One way to future-proof your business is to spread the risk of a downturn by looking outside this segment. Always seek new customers that can grow into the top tier, or new product and service areas that can become significant revenue sources for the company.
This can be difficult to do when so much focus is spent servicing areas and customers that have a big impact on the current bottom line. One way to do it is to assign resources to specific targeted customers or product revenue goals that need to be accomplished over a longer period of time. This can help the company focus on reaching a small future goal without it getting swallowed up in the priorities of the larger organization. For example, IBM set up a special organization logically and physically separate from the main company in order to accomplish building their first personal computer.
3. Accumulate cash reserves.
In order to help future-proof your business during an economic downturn, you may want to consider having extra cash on hand that can help fund losses. Companies that have cash reserves can also take advantage of dropping prices (that typically happen as a result of less demand) by having the cash to pursue these opportunities.
You can check your monthly cash-flow statements to determine if your company is increasing or decreasing cash balances at the end of the month. Other actions that can also help increase the company's cash flow is focusing on getting paid from customers quicker, securing longer payment terms from vendors or keeping inventory turns as high as possible.
4. Consider drawing on a bank credit line before it is needed.
Financial institutions usually want to give credit to healthy companies. One way to future-proof your business is by drawing on a bank credit line to make sure you have at least six months of cash reserves on hand before it is required.
These balances don't need to be the entire operating expenses for this period of time (since it is unlikely that sales would be reduced to zero), but can instead determine how much additional cash would be needed if sales shrink 50 percent.
5. Look for cost-cutting opportunities now.
Too many companies wait to cut costs until there is a financial necessity to do so. To future-proof your business, consider researching what expenses can be cut now. You can do this by reviewing each category on your profit and loss statement. Determine what the category does to generate or maintain current revenue, and look for alternative vendors that can also provide the same quality and level of service at a lower price.
Even if you do not switch, having alternatives may give your company leverage when you're negotiating prices with current vendors.
6. Partner up.
We live in a connected business world where more companies cooperate in order to effectively compete. You can help future-proof your business by looking for complementary partners who want to attract the same customers and share the financial investment risk. For example, many local retail merchants sometimes cooperate on their marketing strategies to bring customers to their part of town to shop.
7. Change the company structure.
Top-down command and control organizational hierarchies can have a difficult time adjusting to rapidly changing market conditions.
Developing smaller semi-autonomous teams can help you future-proof your business. Consider giving these teams more decision-making ability and keeping them up to date so they know the financial impact reaching their immediate goals can have on the whole company. Remember that these teams may also have an opportunity to innovate and anticipate future trends by being closer to the front lines of business.
8. Focus on the experience provided, not on the product sold.
In a business world where there are few barriers to distribution, more products can be purchased anywhere at low prices. That's why customer service has become more important than ever. Consider investing money in providing the best experiences to your customers to help future-proof your business. This can mean investing in staff that on-board customers or other services that help retain clients instead of exclusively putting money into the marketing and sales process. Customers tend to pay for what they think is added value.
Remember: It's probably not a matter of if another domestic recession will hit the economy, it's a question of when. It may be much easier to future-proof your business with a thoughtful process now, then to take quick, panic-incited actions when they are desperately needed.