Every small business goes through rough patches that stall growth and squeeze cash flow. This forces the business to stay in a state of just “getting by”. Rough patches can come in all shapes and sizes; maybe you lost a key employee, had a slowdown in product development, or the economy is going through a downturn and cash is tight. Regardless of the reasons, growth can still be possible even during uncertain and challenging times. In fact, slowdowns can serve as the perfect opportunity for making positive shifts that will later benefit your business. Use these five strategies to prepare yourself for uncertain, or slow, times and position your business for future success.
1. Refine your business plan and align your financial goals
When facing hardships, it’s important to take a step back and see the bigger picture. Sometimes a challenging situation can provide opportunities and room for growth. Use this time to take a critical look at your value proposition, your business plan, and the current market situation. It may make sense to research your competitors and reach out to customers to gain valuable insights. Engaging your key team members to assess the company’s strengths, weaknesses, opportunities, and threats is always a good idea. Whether the ideas are good or bad, it’s important to get feedback from your team. You never know what blind spots exist until to reach out to others for their input. Use the information you get to make some key decisions about the future. Then, take it a step further and update your business plan to be aligned with any new financial goals.
2. Prioritize your expenses and revise your budget
Review your expenses and cut where you can. Expand programs that can foster business growth, such as those focused on marketing and business development. Although some companies tend to cut out the marketing at times of a slower economy, it’s critical to keep up the marketing efforts and make sure you don’t lose any traction. You should, however, eliminate expenses that aren’t business-critical or don’t yield a return. Be sure to avoid making cuts that expose you to risks. Insurance, for example, is an item you may be tempted to drop, however, a good small business insurance policy will be a lifesaver if the unexpected occurs. Make sure you don’t cut anything that could save you money later! If you haven’t read the article I wrote on zero-based budgeting, that’s a good next read for you. https://www.forbes.com/sites/theyec/2018/03/21/zero-based-budgeting-how-to-cut-down-on-unnecessary-line-items-in-your-business/#505c8f1b3ce7. Encourage Another great budget article on eliminating unnecessary expenses that I wrote is below: https://www.inc.com/entrepreneurs-organization/build-a-better-budget-in-2019-six-tips-for-eliminating-unnecessary-company-expenses.html
3. Improve your cash flow
Look at your business’ cash flow. The basic principle here is to encourage payments from customers as soon as possible while delaying outlays of cash for as long as possible. You do however want to be cautious when paying vendors late. If you want to extend terms, first ask them to renegotiate so you don’t put your business relationships at risk. In order to get cash in the door faster, take some simple steps, such as invoicing customers immediately, getting your customers to pay via credit card or ACH, or having them pay in advance when it makes sense. Also, retainers and deposits for professional service firms are generally a good idea. Some other examples of how to recuperate cash flow include: creating incentives for early payments and penalties for late ones, reevaluating your product pricing, and enhancing marketing initiatives. You can also take advantage of payroll-based billing options such as paying your worker’s compensation premiums based on actual payrolls. This can eliminate the need for a large down payment. Lastly, consider higher deductibles in exchange for lower premiums on any insurance policies.
4. Have a back-up plan
It’s mission critical to prepare a 13-week cash flow forecast regularly, weekly if possible. Make sure you have enough cash to cover operating expenses. If cash is tight, ensure you have a backup plan, such a line of credit, family funding or an SBA loan. Banks are aggressively lending money currently, so it may make sense to take advantage while the lending market is hot and rates are low. If a typical bank loan isn’t going to happen for you, look at alternate ways to get financing. At Optima we have great relationships with banks and lenders of all shapes and sizes, so please let us know if we can make an introduction. Also, when updating your cash flow forecast, pay close attention to your revenue expectations and how fast you expect to collect the funds. You need to make sure that all your products and services are profitable. With that said, it’s always a good idea to reevaluate your pricing strategy and determine what your overhead allocation should be. Make sure your pricing is competitive while still delivering the highest quality products and services.
5. Examine your internal operations and streamline your accounting processes
There’s always room to streamline processes and bring new efficiencies to any business operation. Seek opportunities to improve – from workstreams to new tools and software upgrades. Tap into your employees and ask for their perspectives and ideas. By streamlining your accounting processes, you can close the monthly books faster and receive timely financial statements. To make things more efficient it may be worthwhile to consider outsourcing any role that you don’t need someone 40 hours a week for. At Optima, we can take a 40 hour a week position that is being done by one person and divide up the duties to the appropriate level. Recently, a new client of ours was going to hire a full-time Accounting Manager but when we assessed what they needed to accomplish, we realized that there was no high-level oversight from a seasoned Controller or CFO or clerical accounting support. The company mistakenly expected their FT hire to work far beneath their level, performing data entry and bank reconciliations. We helped them with the decision to outsource to our team, which provided them with a part-time Bookkeeper, a part-time Senior Accounting Manager and a part-time CFO. We are typically onsite and engaged in their business, and for the same cost as they were planning to spend on one full-time person. Not only does this solution create segregation of duties and improved internal controls, but they get more value out of their accounting team and now that they have a CFO that can provide thoughtful strategies that improve the company’s profitability for years to come.
As your business evolves, preparation for uncertain times is critical. Keep these ideas in mind and set yourself and your business up for success. If we can help with anything you read about, please reach out to us at jennifer@optimaoffice.com. We work with every client to personalize a solution for them. We want to help you identify risks, implement solutions and grow without having to worry about your accounting or HR issues. We will make sure you have accurate and timely financials with people who care about your success.
DISCLAIMER – Due to the daily changing environment and guidelines being provided by the government, this information could be outdated. Please contact our office for the latest updates and guidelines. Optima Office is not responsible for any actions taken due to the information provided. The information provided here is for instructional purposes and does not represent legal advice being given by Optima Office.
