CEOs are under a lot of pressure to keep everything moving in a positive direction during times of economic upheaval. How can business leaders strike the appropriate balance between staying the course and making the necessary adjustments when consumer spending slows?
Here are several time-tested strategies in which to focus your energies.
If the economy is unstable (and it currently is), people tend to spend less money, stock prices fluctuate, and unemployment rates rise. Although the experts can’t always accurately predict when these changes might happen or how drastic they might be, they know temporary fluctuations will occur.
This puts pressure on the C-suite to over-perform. When business owners and CEOs are responsible for many high-level tasks and don’t have much time to spare, however, the basic practices of good business hygiene — planning, growth investment, and developing long-term business goals — can often be the first things to be neglected. This poses a dilemma because those good business practices are instrumental in keeping a company in solid financial standing.
How can you avoid falling into that trap? Consider these expert-approved steps below to outlive economic instability:
- Keep the Cash Flow Positive
Simply put, money is crucial for your business to function. With a consistent and reliable cash flow, your business will thrive. Think about structuring repayment terms according to your cash flow. Such an approach can provide you with the funds needed to upgrade equipment, buy supplies, and cover payroll costs.
You can also apply for a working capital loan to cover regular expenses like employees’ salaries and keep your business moving. Another option is to solicit help from outsourced accounting services to tidy up your business plans.
- Create a Realistic Budget
Develop short- and long-term budgets to manage your finances, especially during an economic downturn. Having a well-planned budget refrains you from going beyond your financial limits.
Moreover, a budget can help to set goals for your business, like aiming for increased revenue. You must add action plans to your budget for your business to meet those goals. Here are a few things to add to your budget plan to maximize its effectiveness:
1) Gross profit
2) Net income
4) Operational costs
5) COGS (Cost of Goods Sold)
6) Capital expenses
When you execute your budget accordingly, you can manage your money better and make investments where they are needed most.
- Have an Emergency Fund
Even if things are going well, having a little extra money tucked away for unexpected expenses is always a good idea. An emergency fund will act as your financial cushion during difficult times and support you by covering unforeseen expenses.
Establish an emergency cash fund with enough money to cover up to six months of necessary expenses like utilities, payroll, and inventory. Collect receivables as soon as possible to start your emergency fund. Business continuity insurance is another way to achieve the same goal.
- Reduce Overhead Costs
Expenses that do not fluctuate with income changes can be a burden during tough economic times. But going for a slash-and-burn method can have rather negative consequences. That’s why you should methodically work through the three stages of overhead reductions — easy, moderate, and drastic.
With easy mode, you trim expenses that include contract renegotiations with providers and changing dealers for services like telecoms or cleaners. The moderate stage requires you to cut off entertainment and travel expenses. Also, it would help if you eliminated outsourcing particular business functions.
Cutting overhead costs drastically can save you a lot of money, but it can also be very disruptive. Drastic cuts include real-estate consolidation and employee dismissals, among other sweeping changes. The goal of overhead reduction is to find measures that will save you money, regardless of the state of the economy.
- Trim Down Your Inventory
Maintaining an inventory can be expensive and requires a lot of attention to detail. Inventory can become more costly during economic uncertainty when product turnover is slow.
Although inventory managers reduce inventory to decrease these costs, a company must balance selling their inventory for cash and keeping enough inventory on hand to fulfill customer orders. Running out of stock is bad for your businesses, resulting in lost revenue and damaging customer relationships. Your best bet is to cut back on inventory that isn’t selling well and isn’t profitable.
- Generate Income From Multiple Sources
This method is quite challenging, considering you must find ways to generate new income sources using the current infrastructure. The goal here is to fetch big returns with minimal investment. Here are some ideas you can try:
1) Start selling to businesses or consumers directly.
2) Redesign your manufacturing process to accommodate a new service or product.
3) Sell your products online to expand your reach to new customers in different locations
Economic uncertainty or not, think about starting a side project to bring in extra money. Instead of spending your side-hustle earnings, deposit them into the emergency fund to have the extra cash in case you need it.
- Focus on Marketing
Marketing and advertising investments are key in any economy. Advertising keeps your name in front of potential customers, but marketing can be difficult when the economy is struggling because people are trying to save money by curtailing spending. If your financial condition allows, try offering installment plans or discounts to customers.
There are many different types of advertising that you can use to promote your business, including social media, email, blogs, paid search, and organic search. A Facebook page that is regularly updated or an Instagram profile that is visually appealing will attract potential customers without you spending any money at all.
Just remember that people are going through tough times, so be mindful of that in your advertising and social media posts. Focus on empathy, togetherness, and empowerment to build a stronger customer relationship.
Life is one big question mark. You never know what might go wrong next. Being prepared and careful is the best way to avoid disasters. Creating a financial emergency plan can help reduce stress during economic uncertainty. Besides tackling economic disasters, these steps will also help you form healthy financial habits and better manage money.
Written by Dr. Anthony Decoste.
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