Hope for the Best, Prepare for the Worst: How to Get Through the Tough Times

Business.com / Strategy / Last Modified: February 22, 2017

The recession is fading. But that’s no reason not to be prepared for the next downturn. Here's you how prepare for hard times.

When times are tough, the tough get going. But how do they keep going?

The recession is fading, but that’s no reason not to be prepared for the next downturn. Because, make no mistake about it, there will be another downturn.

To make sure you are prepared for the next downward business cycle, it’s best to be, well, prepared. Here’s how.

Review Your Business Plan

It’s always a best practice to review your business plan every six months (or more often) to evaluate what’s working and what isn’t, and make necessary course corrections. As serial entrepreneur and LinkedIn influencer James Caan points out, taking steps to remain fighting fit during the best of times puts you in an even better position during the not-so-good times.

Related Article: The Day Our Business (Almost) Died

Don’t Grow at the Expense of Profit

Amazon is the exception to the rule that you can’t grow your company at the expense of profitability. Most companies aren’t Amazonian enough to carry out an aggressive growth plan they can’t sustain if the economy tanks. Caan emphasizes the need to make a healthy profit margin in the range of 20 percent (or the norm for your industry segment).

If you aren’t hitting that mark, concentrate on improving profitability rather than growing the business. Changes could include reducing expenses, eliminating low-margin accounts that are expensive to service, or finding suppliers that meet your quality standards at lower costs. It’s best to be lean at the onset of a downturn rather than to have to scramble to shed expenses quickly.

Improve Cash Flow

Improving cash flow results in higher profit margins and more available funds to grow your business. NerdWallet advises quickening the pace of accounts receivable collections. Offer discounts of two to four percent (a customer can save $200 to $400 on a $10,000 invoice) for quicker payment. Despite the smaller check, it’s a good idea for business. Getting cash back to your business sooner makes more money available to reinvest and pay your bills. At the same time, you develop a strong customer relationship that encourages future business.

Conversely, look at how fast you pay your suppliers. Forbes points out that if your competitors are paying in 45 days and you are paying in 30 days, that’s money you could be using.

Related Article: Spread Out Your Eggs: Should Your SMB Diversify?

Invest in New Equipment and Infrastructure

If you have healthy profits, put them back into the business. Invest in new equipment to improve operational efficiency and to prepare for future new business and product development. You already have state-of-the-art facilities? Consider purchasing a supplier or distributor to vertically integrate and streamline your supply chain to both reduce costs and improve quality control.

Don’t need new equipment? It’s always good to have something set aside for the proverbial rainy day. The Edward Lowe Foundation notes there a number of investment alternatives for entrepreneurs, including high-yield cash management funds and other non-company investments. Consult a professional financial advisor to assess the best possible options.

Diversify Your Customer Base

A business that is overly reliant on a few key customers is risking potential disaster should those customers ever fail. Just ask any automobile suppliers during the industry crisis of 2008 to 2010—those that are still around, that is. ThoughtLeaders points to an additional risk that is not as obvious.

If you do work primarily for one or just a few customers, you tend to customize your products and processes to service that customer. The danger is that everything becomes so customized to that customer you lose the flexibility to sell to other markets. At that point, you are, for all intents and purposes, a subsidiary of your customer. That’s fine if your goal is to eventually have your company acquired by your customer. If it isn’t, it’s going to be harder to develop your business and survive any future economic hardships.

Consider new markets and industries where your products can be sold with little or no modification. Develop new products that target different users. Push back when a customer asks you to refit your processes and, if you must customize, at least charge them for the accommodation (the mere hint of a price increase or surcharge may be enough to discourage them).

Let the Good Times Roll, Until They Don’t

Things are looking good for the economy, which should be good for your business. Just don’t let today’s optimism turn you into the grasshopper that doesn’t prepare for the long winter of an economic downturn.

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