Between the COVID-19 pandemic, the move to remote work, the mass pivot to online shopping and selling, and now, high inflation, entrepreneurs have had to weather significant short-term and long-term challenges.
The best ways for entrepreneurs to forestall potential downturns in their businesses, keep their small businesses afloat, and thrive during challenging economic times boils down to these three things. Let’s call them the Ms:
- Multiple profit centers
Master these, and not only will you be able to keep your business afloat, but you will also ensure that your business will stay on top.
Let’s learn more about the secrets to turning the three Ms into useful tricks for your business.
Secret #1: Manage Your Money Wisely
If you want your small biz to thrive during uncertain economic times, the first thing is to manage your business finances in such a way that you have enough working capital—or money moving in your business—and (hopefully) enough cash reserves. That way, you’ll be able to handle both the highs and lows that come with tough times.
And the secret to that is to make sure that you have enough money coming in (income) while simultaneously making sure that you do not have too much money going out (overhead).
Let’s examine both.
Get Enough Money Coming
People become entrepreneurs for all sorts of reasons. It may be that they have a passion they must pursue, a skill that can be exploited, or a love of some product or service they want to devote their time to.
But whatever the reason, it is pretty safe to say that it is not because they love small business finances or budgets.
If this describes you, oh well, because the fact is, if you want to stay in business and weather the tough times, you have to master small business finances. Your other great traits, like your enthusiasm, passion, and being a great salesperson, can only take you so far. To keep going further, financial acumen becomes necessary. Here's what to focus on:
Monitor Your Cash Flow
Cash flow is the movement of cash in and out of a business, including cash receipts from sales, investments, financing, and cash disbursements for expenses such as rent, salaries, and supplies.
As such, it is the lifeblood of a business as it represents the amount of cash that is available for the company to use at any given time. It is imperative that you keep a close eye on your money’s movement so that you always have enough cash coming in to cover your expenses.
Here are a few ways to manage cash:
- Forecast cash flow: Develop a forecast to predict when money will come in and go out of your business. This can help you anticipate any potential shortages and take steps to avoid them.
- Monitor cash flow: Regularly keep track of how your money moves. Review your accounts receivable, accounts payable, and bank statements to ensure that you have an accurate understanding of your cash position.
- Invoice promptly: Send out invoices as soon as possible to ensure you receive payment on time. In addition, consider offering incentives for early payment, such as discounts, and have clear penalties for late payments (i.e., over 30 days.)
- Build a cash reserve: Establish a cash reserve to help cover unexpected expenses or cash shortfalls. This can provide a cushion during challenging times and help you avoid relying on expensive financing options.
Despite best efforts, sometimes business finances require a loan to get through the tough times. Financing options such as business loans, grants, or lines of credit can be great when necessary.
In particular, look into loans guaranteed by the Small Business Administration (SBA). SBA loans are great because:
- Often the terms are more favorable than “regular” bank business loans.
- Underwriting requirements are also eased, making these sorts of loans easier to get.
Note: The SBA does not make the loan. It is only a guarantor. You will need to find a bank that does SBA loans.
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Keep Your Overhead Low
During financially turbulent times, it is crucial for businesses to keep overhead low because such times often result in less income, reduced revenue, and, additionally, limited access to credit. As such, by reducing expenses, a small biz can maintain its financial stability and help ensure its long-term sustainability.
In addition, during a recession, competition between businesses often intensifies as customers become more price-sensitive; “customer loyalty” becomes less of a thing.
Accordingly, another benefit of keeping the overhead low is that it allows a smaller business to offer competitive prices and yet remain profitable.
Here are a few smart, easy ways to reduce overhead:
- Budget: Start by creating a budget for your business. This will help you identify where you can best cut costs and where you likely need to prioritize spending. Make sure to track your spending and adjust your budget as necessary.
- Prioritize expenditures: Focus that budget on the most important expenses for your business, such as rent, utilities, and payroll. Look for areas where you can reduce costs without compromising the quality of your products or services. DO NOT cut those areas that help drive revenue, such as marketing.
- Look at possible cuts: Can you re-negotiate contracts with vendors in your supply chain? Can you move to cheaper digs? What about subletting space you are not using? Or can your business realistically move to permanent remote work, thereby ridding you of rent and utility costs for good? Finally, while layoffs are, of course, unwelcome, sometimes they are necessary as labor is often the biggest line item in a business budget. Given that, consider strategic layoffs or furloughs.
Secret #2: Market Your Business, and Then Market it Some More
Marketing is more important than ever in tough economic times because less revenue is coming in. People spend less, customers move away, or they may shift to a rival offering the same service or product for less.
Whatever the case, vigorous marketing is, therefore, more important than ever in tough times because it keeps the pipeline to new customers open, and you need new customers to replace the ones who leave.
The problem is that with less money coming in the door, an entrepreneur might be tempted to cut back on their marketing efforts to balance the budget, but that would be a big mistake. If anything, you should allocate more money toward your marketing during tough times for two reasons:
- It is easier to stand out. When everyone else is hunkered down, just trying to survive, it is easier to get noticed. Instead of a competitor taking your customers, you could take theirs by marketing more.
- You need to replenish customers. As indicated, and as you well know, customers leave for all sorts of reasons – both good and bad. Getting new customers is easy during boom times because people are flush. But when things are tight, things get tight. Either they will spend less with you or leave altogether. Spending more helps you get more new customers. As such, spending money on your marketing doesn’t cost—it pays.
Marketing Strategies for Tough Times
The good news is that with digital marketing, getting your business in front of new customers is easy and affordable. A couple of “guerilla marketing” (i.e., marketing strategies that are exceptionally cost-effective) tactics you might want to consider are:
Turn to Social Media
There are two ways to use social media to grow your business during challenging economic times.
The first is organic—that is, getting your businesses noticed via your regular social media posts. Posting consistently on Instagram, TikTok, Facebook, Twitter, and LinkedIn can help your business get noticed and remembered. Doing so is a branding exercise in which the effort you get out roughly equals the effort you put in.
If the goal is to get people to think of your business when they are looking to buy what it is you sell, it follows that they will more likely remember you if you post consistently where the eyeballs are.
Second, paid advertising on social media can also really pay off. By micro-targeting your exact desired demographic, you can place your pay-per-click ads in front of those most likely to like your ad and click on it.
Voila! Instant warm lead.
Use Other Digital Media Tools
Getting your business in front of potential new customers used to be very difficult and expensive. TV, radio, magazines, signage, etc., were pricey because they charged a premium for the hundreds of thousands, if not literally millions, of people potentially seeing your ads.
These days, finding those few is easier, faster, and cheaper than ever. For instance, you could:
- Advertise on a specialized podcast or in a specific e-newsletter. Say that you own a construction company. Advertising on a construction or building podcast or in a big construction website’s e-newsletter is a win because the audience is smaller, so you pay less, and it is highly targeted, so your advertising dollar is more directed and goes further.
- Launch your own podcast or e-newsletter. Doing so brands you as the expert (after all, you are the one interviewing people or sending out the email).
- Host a webinar or live streaming show: The same benefit applies here. Launching an online event costs almost nothing, but the potential value is tremendous. You’ll be showcasing you’re an expert and—if you market it well enough—could reach a ton of people.
Secret #3: Create Additional, New Profit Centers
One of the problems for entrepreneurs when faced with a challenging economic climate is that the business model they have been using may not work in the new conditions.
That business model typically revolves around one or two tried-and-true ways to bring in a buck. Whether it is an e-commerce store or a brick-and-mortar one or whatever, small businesses typically have but a couple of profit centers (i.e., ways to make money).
Does Amazon still only sell books? No way. Does Starbucks still only sell coffee? No again. Great businesses know that to get new business, they have to invent and perfect new profit centers.
For you, that might mean a new product, a new subscription service, creating a new partnership, or opening up an additional store in a new locale. But whatever the case, creating additional profit centers is a key strategy for not just surviving but thriving during tough times.
It’s like this: Starbucks learned quickly that hot coffee sales go up in the winter and down in the summer. What to do? Create a summer drink, that’s what. Doing so evened out their business cycle and became a hedge against a bad “season.”
You can and should do the same. Multiple profit centers mean you have that many more ways to make a buck. And the more profit centers you have, the less likely it is that an economic downturn and the slowdown of any one profit center will have a substantial effect on the entire business.
Shoring Up During Good Times Protects Your Small Business in Bad Times
Whether you are in boom times or bust times in your business, the essential survival strategy should be the same.
Remember the three Ms: money, marketing, and multiple profit centers.
You’ll want to mind your money, boost your marketing, and create new profit centers for your company to survive any hard times.
If you build a small business boat out of these, you can weather any business storm.