Tanking Economy -- Strategies Just in Case

When the economy is strong, revenues come kind of easy. We are consistently busy and cash flow is strong and stable or at least not worth panicking over. We focus on our operational challenges to help get as much work done and rake it in. Usually, businesses focus on growth during these periods, not efficiency. We are strengthening relationships with existing customers and suppliers with no real incentive to think strategically about the state of our business. When times get tough though, the cracks in the business model start to show, often too late to remedy.

With the economy teetering on both recession and signs of inflation, there is no better time to do a strategic diagnostic of your business. The goal is to take a step back and look at the foundation of your business model and diagnose how vulnerable you are to an economic downturn. In some ways it’s similar to a diagnostic that you might do at any time with a business regardless of the economic conditions. Only now, the idea is to preserve existing revenues and minimize exposure to vulnerabilities.
In some prior posts we discussed some of the financial opportunities that the mortgage crisis has presented. But what should someone do who has no debt to restructure, no house to buy and no big purchase to borrow for? How about investing in diversifying and strengthening your business for the future? Another way to think about is shaping part of your business like an annuity in the sense that cash flows are more stable and less vulnerable to the ups and downs of the economic cycle. To do this, ask yourself a few hard questions about your business. And of course don’t just answer truthfully, answer cynically;

-- How exposed am I (or how exposed are my customers) to economic downturns?
-- Am I overexposed or only serving certain sectors? Do I rely on one or two main customers for a majority of my income?
-- What can I do to diversify my customer base?
-- Is all my spending on marketing, labor, equipment and material justified? Am I using everything efficiently?
-- If business drops 50%, what would I cut first? Can I cut it now?
-- What happened during the last economic downturn? How did others in my industry stay afloat?
-- What are my customers biggest pain points? How can I ease those?
-- What power or leverage do I have to retain business
The answers to some of these scary questions will guide you on how to use your resources and money wisely in uncertain times like these. Some examples of you might come up with;
-- Investing in marketing yourself to customers that are less susceptible to tough times for example in government, nonprofit, utility sectors. Perhaps if you focus on commercial clients today, is there a way to diversify your client base with individuals or residential customers.
-- Could you train yourself or an employee to do something you pay a premium to outsource (e.g. computer service, data entry, or office admin).
-- You may even consider selling an underperforming part of your business (or part of your customer list) to a competitor so you can refocus on your core customers or line of business.
-- Consider changing your pricing structure. Can you build a contract model into your business so that customers buy a 2 year contract for your service instead of per use, guaranteeing you income regardless of the state of the economy.

If you are ahead of the curve and thinking about this now, you will be prepared to make the tough choices in time. If not, you wont know what to do and it will be too late to do it.