Five Key Strategies for Navigating Economic Downturns

Chip Schweiger: 0:00

While there are no set playbooks to follow when it comes to your business weathering the storm, but I do have some advice that will help you keep afloat. One of these best strategies includes following general guidelines on how others have handled their own turnarounds. But remember, each situation can vary, so look at what works best with yours before trying anything else. So it's these tough times that I want to talk about this week, and I want to do so by giving you five pieces of advice to weather the storm. Chip Schweiger here. W elcome to another edition of Things Entrepreneurs Should Know, the top business podcast for entrepreneurs, founders and business owners who want to build lasting financial value and supercharge the growth of their business. Well, we're still in uncertain economic times. Between trying to keep a cap on inflation to the continuing war in Ukraine, to political discord, there's a lot to think about. And while your industry may be mostly immune to rough economic times, and maybe even as growing, these external factors still create complications in running your business. So today on the show, we're replaying episode 24 from August of last year, where I talk about the five pieces of advice that will help keep your business afloat. Hope you enjoyed this re-released episode and next time. We'll be back with all new stuff, so be sure to subscribe For the episode. Check out the show notes at teskpodcom. Hi and welcome back. As global and macroeconomic developments continue to morph, one of the trends we're clearly seeing is business owners developing strategies for how to deal with inflation and recessionary pressures. Now, I know the White House says that we're not technically in a recession, and I get it, but it sure is starting to feel like it right. Whatever economic cycle we're in at this particular moment, it's certainly putting pressure on consumers and businesses. In a lot of ways. We're in, and headed further into, uncertain economic times, between inflation and the continuing war on Ukraine to another election where all these folks seem to do is yell at each other from the top of their lungs. And if you haven't figured it out yet from listening to this podcast, I'm not the biggest fan of the two-party system in this country. Just think it fosters a rush to the extremes when most of us are somewhere in the middle. But that's not what this episode is about. So back to the economy. While the industry you operate in may have been mostly immune to rough economic times and even grew during the pandemic, in a lot of ways, it still creates complications in running your business. Interest rates will likely go up, other basic materials can get more expensive too, and you may see a fall off on the margins from some customers, and that trickles up and down the entire chain. Well, there are no set playbooks to follow when it comes to your business weathering the storm, but I do have some advice that will help you keep afloat. One of these best strategies includes following general guidelines on how others have handled their own turnarounds, but remember, each situation can vary, so look at what works best with yours before trying anything else. So it's these tough times that I want to talk about this week, and I want to do so by giving you five pieces of advice to weather the storm. So let's visit on each of them. Number one is to look at the big picture. Too often, people get caught up in the day-to-day operations of their business and don't take the time to step back and assess the big picture. This can lead to a really narrow view of a company's operations, which can prevent you from seeing important problems that need to be addressed. It's important to periodically take a step back and evaluate your business model to ensure that it's still relevant and still effective. This will give you a chance to identify any areas that need improvement and make necessary changes. Additionally, looking at the big picture can help you better understand your company's strengths and weaknesses, which can be beneficial in developing strategies for growth. Failing to periodically assess the big picture can lead to stagnation and ultimately hinder your company's ability to compete in today's marketplace, and this is especially true if you're operating in a mature industry. For example, suppose a business owner discovers that two employees are constantly making mistakes with inventory that cause certain supplies to either be overstocked or understocked. While your initial reaction might be to fire those employees, it could be wiser to think about whether the manager who hired and supervises them has properly trained them. If the manager is to blame, that person could be fired, I suppose, but again, this might not be the best approach. If a manager has developed strong relationships with your customers, it's important that they stay in place. Retraining might be a more appropriate termination and could even result in increased sales for your company. You can't manage what you don't understand, so by thoroughly scrutinizing the strengths and weaknesses of your employees, it allows for a bird's eye view into any potential problems before they arise. This way, if there are issues with an individual worker or group, you'll know how best to fix them without having too many changes made at once that could cause more troubles than good in future sales volumes. And while we're on it, let's talk about another tip, and that's to inventory your staff. So what do I mean? Payroll is often one of the top costs of any business, so seeing to it that the money is well spent makes a lot of sense. This may involve a thorough review of the staff, both when a problem arises and during the normal course of business, to make sure that the right people are on board and doing their jobs effectively. Both small business owners and large corporations tend to be penny-wise and pound-foolish when they hire the least expensive workers. How so? Well, your least expensive workers often don't bring value to a business and may be suspect of their productivity, but they're less expensive, so the thought may be there to save money. Hiring one worker who costs 20% more than the average worker but works 40% more effectively or consistently generates higher sales per hour or per customer makes a lot of sense. I guess what I'm trying to get across is that this is not the time to go with the low-cost employee, because you need quality and you need efficiency and a lot of time. You don't get that with the lowest cost employee by constantly seeking resumes and interviews with new people. Business owners can make changes to staff when needed to increase efficiency. Okay, another super important thing to think about is ensuring that you have access to cash. Have you heard me talk about cash flow before? Business owners should take steps to ensure that their company has access to cash, particularly in periods of crisis. Now, in episode 22, we talked about why cash flow is so important and how to get it, and it's even more important when the economy gets a little scrappy. So encourage your customers to pay early. For example, if your payment terms are net 30, offering a slight discount for customers paying in net 10 can really be a big help. Oh and, by the way, try to get to know your vendors and extend payment terms as long as possible. Most vendors will ask businesses for net 30, but once you build up a positive relationship, they may be more inclined to offer net 45 or even net 60. And Remember to maintain a weekly rolling cash forecast. A rolling cash forecast is a good practice for improving cash flow overall, but it's also essential for weathering the storm until we return to calmer seas. Now it doesn't have to be complicated or fancy. Excel can easily allow you to project a weekly rolling cash forecast. You should include all your estimated inflows, such as customer receipts, and all outflows, such as vendor payments and payroll. Record this data on at least a weekly basis. Your rolling cash forecasts will help you plan staffing needs, commit to new vendors and Ensure funds will always be available to make payroll and vendor payments Okay. The number four tip is to start sweating the small stuff. Although it's important to keep an eye on the big picture, this tip is really focused on not overlooking smaller things, because these are the things that may have an adverse impact on the business. A large tree obstructing the public's view of your signage, inadequate parking, lack of road or traffic access and ineffective Advertising are examples of small problems. They can put a big dent in a business's bottom line. Also, going through your quarterly expenses line by line may also help. I wouldn't focus too much on the one-time expenses here, as most of those items were likely necessary charges. Instead, look for small items that seem innocent but are actually draining your accounts. For example, the cost of office supplies can quickly get out of hand if they are ordered improperly. Similarly, if your supplier increases product prices, you should entertain looking around for a cheaper supplier. Not saying you should change, but at least look around. And, as we talked about in previous episodes, diversifying your suppliers actually has the added benefit of making your company more valuable. And the last tip is now is Not the time to sacrifice quality. Keeping a handle on your cost is crucial in tough times, I get it, but be cognizant of not sacrificing quality when you go on the offensive and start making product changes. Business owners seeking to improve profit margins should be wary of making dramatic changes to key components. So think about a store owner going through a dry spell. They could seek to expand margins by purchasing cheaper and inferior products, but this could backfire big time if customers get pissed off. Not all products or services out there have a great reputation, and if you have a reputation for having quality, it doesn't have to be the highest price, but just good product that you sell 80% of the time. You need to stick with it. Don't give your customers a chance to get dissatisfied and go somewhere else. The key is to make costs and other cuts that don't compromise the quality of the finished product. Perhaps there's a way to cut the price of the bags instead. So five tips on how to weather the storm that looks like it's coming. Hope I'm wrong. I really do. But if we do go into an official and I can't even say it because I don't want to put it out there in the universe We'll just say the R word. If we do end up there, that's not good for business, and I mean most any business People. Saving their money during difficult periods means they're spending less, which hurts a company's customer base. So it's important that you stay alert every time. There isn't growth happening right now, but one day soon it will be back and look. Yes, a lot of doom and gloom here this week, but I feel like I owe it to you. With a little straight talk and at the same time, your business can absolutely thrive in a bad economy, but you've got to take action and keep your knees bent. Yes, companies can cut costs, which is a common thing to do when facing hard times. This can mean laying off non-essential staff or executives taking a temporary pay cut. Companies making a physical product can change their suppliers, while others may opt to use less expensive materials, but when times become difficult for your business. It's important at that point more than ever to retain a cool head. Sometimes there is a simple solution that may help you keep your business running that you wouldn't have noticed if you were too stressed or bogged down in the tiny details. Be aware of the big picture and making sure that you, as the number one employee, are Performing well are the number one priorities during a period of hardship. Oh, and one last suggestion you should also be discussing this with your investors or business partners and getting their feedback on strategies. After all, this is your business, but it's their money, so they'll have a vested interest in helping you through it. And bonus Think about how good you'll look when you bring this up to them proactively, rather than getting caught flat-footed later. Well, that about wraps up another edition of the things entrepreneurs should know podcast. Be sure to check out our website at TESK pod.com, where you can find the show notes and archive of our past episodes and other resources to help grow your business. That's TESK pod.com. And if you haven't done so already, I'd really appreciate it if you take one minute to give us a review on Apple podcasts or Radis on Spotify. It helps out a ton to get this into more entrepreneurs and business owners, and if you've already done that, please consider sharing the show with families and friends who you think might get something out of it. As always, thanks for your support. This is Chip Schweiger, reminding you that if you always do what you've always done, you'll always get what you've always got. We'll see you next time.