Entrepreneurs share insights about cost savings or growing revenue in a recession.
We feel the economy is slowing down. We may even be heading for a recession, as many analysts predict. Venture capitalist and private equity firms are putting less capital to work in 2022 and raising funds for entrepreneurs is getting harder and worse. But as we know, startups and small businesses are fundamentally different from larger companies. And as such, recessions affect them differently.
Unlike large, global companies, smaller companies typically don’t have the diversity of revenue streams to help them survive early in recessions. Likewise, they don’t always work with the same quarterly and annual budgeting plans, but rather rely on monthly cash flow, meaning they feel the blow faster than some larger companies.
But the good news is that smaller actions yield bigger results in terms of reshaping the business and building resilience to adversity. In addition, many small businesses have strong relationships with their customers and communities, a loyal fan base that may be willing to stick with the company through thick and thin.
Let’s not forget that small businesses in general create between half and three quarters of the jobs in the US, so they are a major economic driver in general. While they may have to take tough cost-cutting measures in difficult times, many of them are also likely to return to investment and growth when the situation improves. The key now is to make smart business decisions.
According to an McKinsey article from September 16, 2022, companies must make critical adjustments to their business as soon as possible. Some of the most common are price adjustments and managing exposure to one-time or variable costs. Some companies may just take action on a short-term cost and that won’t help these companies in the long run. As we move into a more protracted inflation/recession environment over the next 12 months, companies should also consider more structural solutions that not only control costs, but also help build a stronger business with potentially new business strategies for both existing and potential customers.
Take a moment and breathe. The key, as difficult as it may seem, is to stay calm and think rationally. Employees and investors are watching and your leadership skills are now very important.
View the business strategy. Review your current business strategy with key employees and possibly external advisors to make timely adjustments.
Keep cash. Cash is king and is the lifestream of a small business. Keep it as best you can by collecting the money your company owes more aggressively, keeping an eye on all costs, and looking for ways to increase revenue.
Examine the business model. Take a look at your current business model and see if any changes can bring benefits by finding new customers, reducing costs, or even creating a new product or service based on an existing product.
Correct size if necessary. You know you need to take steps to save the company, so if you need to implement employee discounts, do it early and wisely. Your growth will return as soon as the economy starts to grow again.
View all expenses with a sharper eye. Take the time to review all accounts payable accounts… all of them. Save where you can without hurting your core business.
Look for revenue gains from existing customers. Look at your current customer needs and see if you can provide them with additional services or support. They can also cut back and maybe consolidate more business with your company.
Plan for growth. Even while you are adjusting the business, you need to plan for the eventual growth that will come in the near future. Don’t be surprised or don’t have a growth plan, because the economy is coming back, because the upswing can be strong.
