Small Business Must Approach Economic Cycles with Consistency
The economy is highly cyclical and can be outright uncertain, which may cause many challenges for small business owners. Unlike large corporations, small business may not always have available resources on hand to deal with necessary corrective action for every trend and emerging issue. And even the most well experienced business owners may encounter new circumstances and barriers that complicate their ability to interpret business cycles.
Any great entrepreneur knows they will never be able to predict the future, but a number of steps can be implemented to help small businesses endure terrible times, while remaining in position to achieve success during growth cycles.
Always Monitor your Company’s Financial Status
Most bankers have deep experience with up and down economic cycles, so they can be a wealth of knowledge when you’re faced with issues more specific to your industry. Some business owners require a line of credit to help support business operations during a down cycle, while others may have the necessary liquidity to finance losses from cash flow – either way, a talented banker can provide valuable advice.
I typically favor keeping the corporate balance sheet debt fee, but there are select industries where that may be next to impossible – for example, in manufacturing, you may need upfront capital to pay for goods and services prior to the end product reaching market.
Keep a Close Watch on your Receivables
Many small business owners are poor bill collectors, which can result in further pressure on the company’s cash flow during good and bad times. Follow-up with whoever owes your company money and hold them accountable to whatever credit terms that were agreed upon when entering the relationship.
Some customers may experience legitimate issues with paying on time, so you need to learn the fine art of being firm while remaining open to negotiation. The most important thing is to never accommodate customer requests that may negatively impact your company’s financial position – focus on win-win outcomes.
Maintain a Low Fixed Expense Operation
The majority of business owners that struggle only do so because they don’t understand their numbers, so it’s critical that you monitor profitability on a weekly basis. Many entrepreneurs go through all the pain of drafting a business plan, but then leave it on the shelf – it’s a good idea to review it weekly to make valuable adjustments and keep your goals on track.
Also be sure that all money spent is truly enhancing the business and not being wasted. My mentor taught me that running a business is the equivalent of counting pennies, if you do a good job all year, those pennies add up to a profit.
Let the World Know About your Business
Many entrepreneurs mistakenly consider marketing a luxury or something that should only be done when capital is abundant. The real inconvenient truth is that marketing is absolutely critical to a successful business and required during any business cycle. You must communicate with customers and prospects continuously to build awareness for your business, sustain your customer base and facilitate any future growth.