Author: Bill Fickling (TAP Financial Partners)   

1) The old expression, “cash is king,” underscores the importance of cash to the survival of a small business during a recession. Many companies carefully analyze their profit and loss statements but don’t focus on cash flow forecasts, despite them being critical to the survival of a small businesses during difficult economic times.

Remember that most accounting statements focus on what happened in the past rather than what will happen in the future, even though most business owners know when rent, payroll, accounts payable, and other large bills will be coming due.

It’s important to know how much cash you will have on hand, particularly in the coming calendar quarter, so that you don’t fall short without warning. There are usually decisive actions you can take to cut expenses prior to a cash crunch, and sales promotions you can run in advance to preserve your cash.

The specific amount of cash you need depends on your industry, but a 13-week cash flow forecast will provide actionable information that you need to survive.

2) Measure your gross margin on products or services carefully, including the hidden costs of labor, to determine which products have the highest and lowest margins. Find out which products are reducing your cash flow by sitting on shelves unsold; mark them down and collect the cash to reinvest in products that sell quickly and at higher margins. During a boom economy, you can try new products and provide a wide variety of products to your customers, but, in a recession, it’s important to stick to products that you know are in demand and will sell quickly. It’s important to turn inventory more frequently in a downturn.

3) Marketing to new clients in a recession is often more expensive than retaining good customers you already have, so it’s important to provide outstanding customer service to your best customers so they stay with you. So, while many customers are looking to “trade down” in a recession because of their own finances, you can ensure loyalty by asking what they would like to see in your store and make sure it is stocked consistently. Stock well-made, quality items and eliminate expensive frills that cost-conscious customers no longer want.

4) Finding and retaining great staff has been challenging lately but, as recession deepens and unemployment rises, finding employees becomes easier. Since the best employees often develop relationships with the best customers, you’ll want to keep your most valuable team members happy and engaged. Concurrently, you won’t be able to afford to pay unproductive staff during a recession, so keep a close eye on productivity and customer satisfaction within your staff.

5) Stay in close contact with your lenders. Many business leaders are embarrassed by poor results and may be tempted to withhold lower numbers from lenders, but experienced lenders are far more likely to be lenient with borrowers who stay in close contact and keep them informed. You certainly don’t want your lender assuming the worst, which they will if you keep them in the dark. Additionally, if a lender feels they are being lied to, they will be quick to call in your loan rather than working with you if they see a path to repayment.

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It’s also important to call in the experts before it’s too late. TAP has experienced advisors that can assist your small business navigate through a recession by providing much-needed, situational financing. Connect with us to learn how we can help your company weather the recessionary storms.

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