You might be frustrated—or even frightened—by the economic changes that are currently impacting nearly every business and family. It's hard not to be during an economic downturn. The truth is that economic cycles are a reality of life. So what adjustments can you make to protect the health of your business given whatever changes are happening?
Cutting costs may be the first course of action that comes to mind—and implementing layoffs to reduce human resource costs might seem like the place to start. It’s a common move that could put your business at risk when the market bounces back. So before you do that, take a fresh, strategic look at the state of your company’s finances and determine what creative actions you could take to help your business survive—and even flourish.
Get an accurate picture of your finances today
Before you jump into action, you need to get a clear picture of where your finances currently stand. Revenue and profit will give you the best window into the state of your finances. So start by looking at your profit and loss reports from your previous two quarters to see what revenues, costs and expenses you’ve incurred. What’s changed from then to now?
Now look at your cash flow statement. How are your receivables performing? Have you seen any slowdowns or an increase in the number of overdue receivables? What about payables—are you able to pay on a schedule you’re comfortable with, or do you often find yourself inching closer and closer to due dates?
Strategically decide which indicators you want to watch to prompt decisions in your financial planning so that your business can stay healthy in a changing environment. Once you have clarity on exactly where you can make adjustments, the next step is finding solutions—figuring out how to slow loss and how to start bringing in more money. Here are three things you can try.
1. Find ways to save
Ask yourself what costs you can cut that won’t harm production.
- Is there anything you're doing that’s not absolutely necessary?
- Are there any economies of scale that you haven't used?
- Do you have any month-to-month subscriptions that could be switched to an annual plan?
- Can you free up cash by making changes to the amount of inventory you keep on hand?
The majority of your money is going into payroll. So performing triage on your finances by cutting employees may seem like an obvious and impactful choice. In reality, laying people off is one of the least productive moves you can make if you want to save your business.
When you lose employees, you lose your capacity for doing business. Without that capacity, you leave your business no room to grow. And while growth may be the furthest thing from your mind when you’re worrying about finances, limiting your ability to grow just sets the stage for your business to shrink. So treat layoffs like a last resort.
2. Increase prices
As your own expenses go up, raising prices may be inevitable. You’ve probably put it off for as long as possible, worried it may push customers away. But don’t let assumptions keep you from doing what needs to be done. If you approach price increases strategically and transparently, you’re likely to have a much better outcome than you’d imagined.
One way to ensure your increases won’t drive all your business away is to test it. Increase prices for a subset of your customers or for shoppers buying your product on a certain channel. Then analyze the effect of the increase on sales. Did you lose 5% of the customers in the test group? That’s a good indicator that the increase will be tolerated by most customers. But if you lose a big enough chunk of your test group, you’ll know you need to rethink your approach.
You can also ease customers into your new pricing model by offering a promotional period. Inform them that prices will be going up in three months, but they can still get your product for the same price until then. They’ll know what to expect, and they may even be motivated to stock up, spending more money now while they can still save.
The longer you’re in business, the more price increases you’ll have to implement as your own costs go up. But it’s important to note that raising prices is a short-term fix. It will help you keep the lights on, but if you want your business to thrive, the most important thing you can do during economic hardship is to find ways to grow.
3. Look for opportunities to innovate
Cutting costs and raising prices are the obvious solutions to money troubles. But don’t be afraid to get creative—you may wind up coming up with ideas that serve your business well long into the future.
Think flexibly about the costs associated with delivering your product or service. Could you change up your packaging, or adjust your product or service in a way that allows you to produce it sustainably while maintaining consistent prices for your customers? You may be able to find ways to automate certain parts of production, allowing you to increase output without increasing costs, or create a lower-price-point version of your product or service to appeal to a different market.
Innovation means something different for every company, so open your mind to every aspect of your business model. And whatever you do, keep your customers’ satisfaction and trust in mind. Don’t bait and switch them with a lower-quality product. Don’t spring changes on them without communicating.
Focus on sustainability
External stressors can show you where your weak points lie. So if you’re feeling panic creep in and are scrambling for ways to plug the holes, take this as an opportunity to make strategic changes that will keep your doors open for years to come—not just the next month or two. What sustainable changes can you make today that will help your business grow?