ENTREPRENEURSHIP || 3 Things You Can Do Today to Survive the Recession
“Do you think there’s a recession?”
This question has been popping up more and more frequently over the past few months during business meetings and when I meet up with friends who run businesses. When the economy first started slipping, no one wanted to believe it. As the number of rate hikes mounted, budgets were slashed for the remainder of the year, and layoffs piled up, people are slowly coming to terms with the fact that, yes, the recession is here. We’ve been in the recession for a few months now, but the glory of the past decade, where the only way was up, was the only future we were willing to accept.
Whether or not you want to assign the term “recession” to the current economic market, you would do well to prepare for the worse. That way, you are prepared if the market doesn’t turn around. Here are three things you can do today to help your business survive the market downturn.
MANAGE YOUR CASHFLOW BECAUSE CASH IS KING
If you have no cash in the bank and no cash to service your debts, it’s over. Just like losing all the lives you have in a game. You’ve gotta start playing all over again. Sometimes game over and starting over again isn’t a bad thing, but what kind of entrepreneur would want to watch their baby die?
What does it mean to manage your cash flow? The simplest way to do that is to ensure your revenue comes in faster than your expenses go out. When business is going well, we often neglect to check when clients are paying their bills—as long as they get paid. For an agency like ours, sometimes this means payment comes in at 30, 60, 90 or even 120 days after project completion. Our terms are usually net 30, but clients conveniently ignore this and pay whenever they want.
When you don’t have cash to pay staff, vendors, or your debts, then it’s game over.
I’ve even had a client where I called the accounting department to follow up on payments after they were already overdue by seven months. I was told that the project was just funded, meaning I wouldn’t see my payment until whenever their next payment cycle was.
It may sound tough but insist on getting prepayments from clients with no credit. If you’ve never worked with them, at least get a 50% deposit. If they refuse, it’s better to walk away from the job than worry about chasing down debts you’re owed.
Don’t feel bad about falling into a trap where the client refuses to pay after the fact, we’ve all been there. The key is doing the best you can up front to minimize cashflow issues and keep the business financially healthy during a downturn. Cash is king.
FIGURE OUT WHAT MATTERS
We have a Chinese saying that when times get tough, you want to open new revenue streams and cut expenditures.
Similar to how you would go through your personal credit card receipts and cross out items you don’t need, you should do the same with your business banking and credit card statements.
Do you need ten magazine subscriptions?
Does every laptop need a full Adobe subscription?
What other enterprise subscription software don’t you need? Or can you consolidate it into one service provider?
While they say don’t try to skimp on small stuff like cutting back on lattes every day, other daily and monthly expenses like business software subscriptions are quite pricey, costing thousands to tens of thousands per staff member on the team for a license. Ask your team what saves them time, and cut back on what they say is nice to have. These monthly expenditures add up!
You should also talk to your account manager about the interest rates on your lines of credit. With the huge rate hikes this year, you would want to negotiate whenever you’re paying interest on business expenditures.
Who is indispensable to your team and do you have any bloat in your business or detractors that cause issues within the team or with your clients? Maybe it’s time to part ways.
Lastly, we’ve all seen the layoffs happening this year, with the most highly-profiled ones being large layoffs from tech firms. This is because they hired too many people thinking the market would only go up, so when the market corrected itself, they had to trim the bloat from their workforce. Even if you don’t run a tech giant, you should look at your team and evaluate who is indispensable to your business. As with every business, it will be 80/20, where 20% of your staff will be causing 80% of your HR problems; maybe now is the time for you to part ways when business is down.
SECURE LONG-TERM CLIENTS
I say this often because it’s true: “your best prospect of tomorrow’s business is today’s clients.”
People do business with other people they like. Of course, your work still needs to be of high quality and competent, but you stand a much better chance of winning a contract when you have an established business relationship. Think of it this way: wouldn’t you want to work with someone you know who provides good service, gets stuff done on time, and you know their work processes and behaviours? We all love predictability. Ensure your service and product are consistent, build long-term relationships, and secure a foundational revenue stream for your business.
Focus on building relationships with clients willing to sign one-year or multi-year contracts. When you don’t know how long the recession will last, you want to have a revenue base coming in to make sure it can sustain your expenses.
If you are planning on trimming down your human resource expenses, that means you already have fewer people to dedicate to new clients; do you want to be committing resources to a transactional client who is only there for a one-month project? Or would you rather commit resources to a client willing to sign a long-term engagement?
Honestly, it feels like it’s Covid all over again, where there’s a sudden economic downturn and revenue drops sharply. During Covid, I learned these key lessons that helped my business survive during tough times: mind your cash, keep only what matters and build a revenue base to weather the recession.
