Every business will feel the squeeze during an economic downturn. But for small businesses, this can be even more difficult – money can be tight even during the best of times, and as a new entrepreneur, it’s impossible to know the best way to respond.
If small business owners have learnt anything over the past few years, it’s to be prepared for the worst. Making sure your business is financially sound will help you overcome any obstacle that comes your way.
In this article, we highlight the different ways you can strengthen your business against the odds, so that it has a better shot at surviving any economic downturns.
The truth is, very few small businesses have a sufficient cash reserve. In the early days, it’s a struggle to make ends meet and, with whatever money is leftover, there’s a common mentality to reinvest as much as possible to help scale your business rapidly.
But in reality, you really need to prioritise your cash reserve. Not having enough cash to fall back on can be detrimental for your business, making it extra vulnerable to any cash flow problems.
Recommendations for the size of your cash reserve vary, but it’s generally viewed that you should have a minimum of three months’ operating expenses.
In turbulent times, you may want to up this to around six months of expenses – so that you can easily overcome any hiccups that come your way.
Ways you can build up your cash reserve include:
By keeping track of your business expenses, you can also figure out if your company is bloating and, if so, what areas in particular are burning through your cash.
For more advice on keeping on top of your expenses, check out our guide on managing cash flow during difficult times.
Depending on your business area, you may find that you need to diversify or pivot your core offering in economic uncertainty. For instance, hospitality businesses had to adapt in order to survive the pandemic, such as starting delivery services.
The Ansoff matrix is a great tool to help you find new opportunities for your business in these instances. Try to return to the tool at least once a year to establish how your business could develop in the future.
Therefore, it’s really important to go above and beyond with your customer service so that you retain them, even in challenging times. Returning customers will give you a much higher chance of securing a sale – selling to existing customers has a 60-70% probability, which drops to a 5-20% likelihood for new customers.
Some great ways to retain your customers include:
As well as helping you to gain more sales, marketing can also be an effective way to grow your brand awareness during this time. Great awareness means that, whilst customers might be unwilling (or unable) to splurge on your product or service right now, they’re more likely to come back to you as soon as they have the money to spend.
If you’re strapped for cash, there are still plenty of ways you can market your business with little to no budget. Stay front of mind with our seven ways to promote your business for free.
For more marketing tips, take a listen to our podcast: How to get marketing done right.
When you’re at this point, you need to establish whether it’s worth fighting back. Our article on what to do if you think your business is failing highlights advice from the UKBF community on what you should do in this instance to save your business - and how to know when it’s time to cut your losses.
Have a specific question you need answering? Start a new discussion thread today.
If small business owners have learnt anything over the past few years, it’s to be prepared for the worst. Making sure your business is financially sound will help you overcome any obstacle that comes your way.
In this article, we highlight the different ways you can strengthen your business against the odds, so that it has a better shot at surviving any economic downturns.
Build up your cash reserves
A strong cash reserve is vital for the financial security of your business.The truth is, very few small businesses have a sufficient cash reserve. In the early days, it’s a struggle to make ends meet and, with whatever money is leftover, there’s a common mentality to reinvest as much as possible to help scale your business rapidly.
But in reality, you really need to prioritise your cash reserve. Not having enough cash to fall back on can be detrimental for your business, making it extra vulnerable to any cash flow problems.
Recommendations for the size of your cash reserve vary, but it’s generally viewed that you should have a minimum of three months’ operating expenses.
In turbulent times, you may want to up this to around six months of expenses – so that you can easily overcome any hiccups that come your way.
Ways you can build up your cash reserve include:
- Chasing up on outstanding invoices: You can also use invoice financing to help manage any cash flow problems that unpaid invoices may be causing
- Find out if you can get any government funding or loans: There's a list of finance and support available for small businesses on the gov.uk website
- Cut down on any unnecessary expenses: For instance, renegotiating contracts with suppliers. Discover more ways to reduce your business costs here
Keep on monitoring your cash flow
Managing your cash flow can help you figure out where you can cut costs and what upcoming outgoings you should prepare for. This reduces your chances of being faced with an unexpected expense that you can’t afford during economic uncertainty.By keeping track of your business expenses, you can also figure out if your company is bloating and, if so, what areas in particular are burning through your cash.
For more advice on keeping on top of your expenses, check out our guide on managing cash flow during difficult times.
Create an action plan for when business slows
When business is thriving, it’s common for businesses to expand their horizons and experiment with new projects. However, when business faces a downturn, it’s important to slimline your activities and only do what is most profitable for your business.Depending on your business area, you may find that you need to diversify or pivot your core offering in economic uncertainty. For instance, hospitality businesses had to adapt in order to survive the pandemic, such as starting delivery services.
The Ansoff matrix is a great tool to help you find new opportunities for your business in these instances. Try to return to the tool at least once a year to establish how your business could develop in the future.
Work on your customer retention
During economic uncertainty, customers will also be looking to cut their expenses. If a product isn’t essential to them or they don’t have a strong relationship with the company, they will quickly cut ties.Therefore, it’s really important to go above and beyond with your customer service so that you retain them, even in challenging times. Returning customers will give you a much higher chance of securing a sale – selling to existing customers has a 60-70% probability, which drops to a 5-20% likelihood for new customers.
Some great ways to retain your customers include:
- Build up customer trust
- Introduce customer loyalty schemes
- Create content that will provide value to your customers
- Build up your relationships with regular communication, for instance through emails or social media
Double down on your marketing
One of the most common mistakes during economic uncertainty is to cut your marketing budget. However, an economic downturn is the time when your marketing is most important – to stay afloat, you’ll need to bring in lots of new business.As well as helping you to gain more sales, marketing can also be an effective way to grow your brand awareness during this time. Great awareness means that, whilst customers might be unwilling (or unable) to splurge on your product or service right now, they’re more likely to come back to you as soon as they have the money to spend.
If you’re strapped for cash, there are still plenty of ways you can market your business with little to no budget. Stay front of mind with our seven ways to promote your business for free.
For more marketing tips, take a listen to our podcast: How to get marketing done right.
Know when you need to accept defeat
It may eventually get to a point where you begin to wonder whether your business still has potential or if you’re just flogging a dead horse.When you’re at this point, you need to establish whether it’s worth fighting back. Our article on what to do if you think your business is failing highlights advice from the UKBF community on what you should do in this instance to save your business - and how to know when it’s time to cut your losses.
Want some advice bespoke to your situation? Look no further
The UKBF community is filled with business professionals who can offer personalised advice for you and your business.Have a specific question you need answering? Start a new discussion thread today.
