Joseph is the CEO of SnapAdsthat helps local businesses find, retain and reward customers.
For small business owners, it is crucial to prepare for financial challenges, especially in uncertain economic times. The Federal Reserve’s recent announcement that they will not raise interest rates unless necessary is a hopeful sign. However, with inflation still above the 2% targetand employment at record lows, the Fed expects things to get even worse.
To position your business for success, even in uncertain times, it’s important to be proactive and explore all options. Based on my experience, here are several ways to increase sales, reduce costs, and be careful with financing to help your business succeed in uncertain times.
Finding ways to increase sales is one of the best ways to solve financial problems. In addition to traditional methods such as marketing and finding new customers, technological advancements enable companies to generate higher revenues with small adjustments. For example, using AI and chatbots to analyze customer touchpoints and personalize experiences can lead to more profit from your existing customers.
Offering a loyalty program to existing customers can also increase cash flow and boost sales. Consider offering benefits such as buying five items instead of one for a deep discount. Discounts may seem like turning a profit, but making customers happy can alleviate some short-term capital needs. Here’s an example: For one of my companies, we want to buy OSB boards for a year ahead at a lower price, and the lumber yard has agreed to store it for free. As a customer, I’m thankful they gave me the opportunity, and as a business they were able to sell some upfront to avoid borrowing. By increasing sales and rewarding customers for continued business, they have a reason to want to help in your time of financial need without having to be aware of that need.
Going through your inventory of supplies and offering discounts to customers can also turn a sitting asset into cash. For example, if your business is in the roofing or plumbing business, it can be a big win for both you and them to round up all the supplies that are lying around and give a discount to a customer.
Cutting costs is another way small businesses can prepare for financial challenges. There are several ways to reduce costs, such as renegotiating contracts with suppliers, reducing energy use, downsizing office space, and outsourcing non-core functions to reduce overhead costs.
Inventory management is always a difficult task, but the right inventory management software can help reduce the amount of money spent on inventory and increase profits. By using software to track customer orders and sales, businesses can identify areas where they can save money by reducing waste. In addition, using cloud-based data storage and communication services can reduce IT costs by eliminating the need for expensive hardware and software. A better understanding of all of your inventory can help you predict how to turn those assets into cash and how not to run out of cash on inventories that can only sit for months without need.
When times are tough, cutting costs requires a new perspective and creativity, such as working with employees to accept a pay cut in exchange for a small percentage of ownership in the company or a percentage of future profits. This is a great way to reduce costs and get team members more invested in the success of your business.
Another way to cut costs is by working with your suppliers. They, too, are trying to grow sales, but they may be bigger and have better access to capital and so are willing to allow a longer time between order and payment or even accept some price concessions or a more committed relationship in the future offer . All companies have the opportunity to show commitment and appreciation to their customers, including suppliers who want to retain you as a happy customer while they can.
When it comes to financing, it is important to consider borrowing money as a last resort. Careful consideration should be given to the type of loan chosen. An effective way to finance the required capital is to offer customers better prices for larger contracts up front. This provides the necessary money up front, keeps the customer happy and can be cheaper than taking out a loan with complicated borrowing costs and payment schedules.
Develop a recession plan, including a detailed analysis of financial forecasts and contingency plans for unexpected events. To reduce the need for borrowing, it’s important to have a business plan outlining specific triggers and associated actions. Triggers can be identified in various situations, such as a 20% drop in turnover in a quarter, for which part of the warehouse has to be sublet, or if the wage costs rise to 80% of the total costs, which necessitates layoffs. Developing these triggers ahead of time will help you prepare for the future and make tough decisions. It is also important to have a good understanding of the company’s financial situation and only borrow as a last resort. I recommend having a team of advisors to help with decisions, planning and financing during difficult times.
After all alternatives have been considered, such as downsizing to a smaller location or working remotely, taking out a loan may be a viable option. It is essential to choose the right type of loan as interest rates can vary. While a home equity line can provide quick access to funds, it usually comes with adjustable rates. SBA loans can have excellent payment terms, but usually hover around 3% above prime, which would be more than 10% in today’s market.
In challenging times, it’s important to be prepared and get your business ready for what’s to come. Coming up with a plan and mapping out different scenarios will help plan for different events that could happen. It can also provide great insight into ways to increase revenue and cut costs when it is most needed.