5 Ways to Protect Your Business From a Financial Crisis
News of an impending recession or economic downturn can feel terrifying, particularly for small business owners and independent contractors. The good news is that many home services are essential to keeping Americans safe, happy and healthy at home – and there are tangible ways to prepare for, and protect yourself during, an economic downturn or crisis.
#1 | Identify the most valuable parts of your business.
Ahead of an economic downturn, you should figure out which parts of your company drive the most — and the least — value. Identifying and addressing the underperforming aspects of your business during a stable time will help you avoid making damaging mistakes during a financial crisis, when you have may to make big decisions in a crunch. It’s also important to have cash on-hand – a “rainy day fund” – that can keep your business running for three to six months.
#2 | Pay off debts and cut costs instead of borrowing more money.
If you sense a crisis on the horizon, don’t wait. The U.S. Chamber of Commerce recommends you start working on a plan to pay off the debt you have as soon as possible. If you’re considering borrowing more because you really need it, you should take a look at your budget first. Where can you cut costs? You may need to make these difficult decisions to keep your business up and running throughout an economic downturn.
#3 | Cut personal spending and nonessential expenses.
If you find yourself in a financial crisis, it’s wise to eliminate any nonessential expenses, including personal ones, says the Small Business Administration (SBA) . This includes everything from expansion plans to tool and equipment upgrades. Even small gestures – like bringing a bagged lunch every day – can cut costs and help you in the long run.
#4 | Keep an eye on your cash flow.
As you tighten the belt on your business, you should also have a solid forecast of the money you’ll have coming in over the next several months. The SBA recommends using cash flow statements, rather than an income statement or balance sheet, so that you can make correct projections for how much money you’ll spend and make over the coming months. You can then adjust your spending as needed. Aim to project three months out.
#5 | Keep doing a great job, and consider increasing your ad spending.
Despite pressure from a financial crisis, it’s important to continue to provide your customers with high-quality work. If you’re able, get ahead of your competition by seeking out new business and adding on staff, even if they are on a part-time basis. Additionally, the SBA notes, companies often reduce spending on ads and promotions during times of financial hardship – but those who maintain or increase ads actually end up outselling their competition. Learn more about preparing for and surviving an economic disaster from the Small Business Administration and the U.S. Chamber of Commerce.
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