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The R word – is it too late to recession ready your business?

by | 15 Jul 2022

Like the ex that broke your heart, the frenemy that just seems to always turn up at the same events as you or the schmoozing uncle from Bridget Jones Diary you’d rather avoid, we’ve been dancing around the R word, the Recession we might have to have, for months.

Considered an unavoidable part of the business cycle, it seems that Australia has gone through a recession pretty much every ten years or so since the 70s, I’m including the Global Financial Crisis of the noughties in there too. Add the pandemic, and the economic fallout for business owners subjected to lengthy lockdowns over the last two years, and a recession could not have come at a worse time.

For many business owners either starting to recover from the impacts of Covid or still struggling with the aftermath, a likely recession might just be the straw that breaks the proverbial camel’s back.

So, what’s a recession? Technically, it’s when the economy experiences two consecutive quarters of negative growth or a significant decline in economic activity – think falling retail sales, rising unemployment as businesses earning less lay off staff and an overall economic output decline. In a nutshell, the economy struggles to thrive.

In this case, the recession we are likely to have, has been caused by high inflation and the upward trend in prices due to recent floods and resulting shortages. Plus international events like the war in Ukraine, not to mention the ever-present continuing impact of Covid have also been factors. The Reserve Bank is attempting to curb inflation by increasing interest rates and reduce spending, and as households struggle to survive or cut discretionary spending, business suffers, the economy slows, unemployment increases and well, you get the picture.

Most experts believe a recession is inevitable, so as small business owners, how can we weather the coming storm. Here are my tips to recession ready your business:

Know your numbers

Start by reviewing your Profit and Loss.

  • Where is your business vulnerable? Look at your income and your costs.
  • Can you reduce or cut back on some of your expenses in the short term or permanently?
  • Consider asking suppliers for longer terms, payment plans or better deals.
  • Are you paying too much rent? Now’s the time to talk to your landlord and negotiate a deal.
  • Look at your leasing payments. Make a note of the lease term left and if you can afford it, ask if you can save money by paying it out early. Alternately, ask for a ‘repayment holiday’ for a few weeks.
  • Review your subscriptions and cancel or suspend the ones you can live without or no longer use. Maybe the free version will work for you going forward.
  • Assess your inventory; cut back or cancel backorders on things that aren’t selling or are no longer needed. Look for new product lines to replace the non-performers.
  • Everyone LOVES a sale. Consider liquidating some of your existing stock – if you’re in retail and don’t have an online presence, consider selling on Gumtree, eBay or Amazon. If you’re a service provider, can you do a short term special on a key service to increase the cash flow?
  • Shorten your invoice terms to 7 days and follow-up customers who don’t pay you on time.
  • Contact your Insurance broker and ask them to review your business insurance – are you covered for loss of trade, for example?
  • Talk to your accountant, BAS agent or bookkeeper about ways to streamline and save in your business.

 

Set business goals

The best businesses plan and review those plans often.

While many business owners believe planning is a waste of time or don’t plan because the process seems overwhelming, I know first-hand that taking time to work on your business can produce incredible results. For me, it all starts by understanding what success means to you in this season of life. What do you want the next twelve months to look like for you and your business? If the thought of planning the next twelve months does your head in, then start with planning the next 90 days. What are three things you’d like to tick off the list in the next 90 days?

Forgo the temptation to be an overachiever when you’re setting targets. Right now, your main goal might simply be maintaining the status quo rather than growth and that’s ok. It’s all about setting a goal, then creating a list of action items to help you achieve that goal. Put them in your diary and tick them off as you achieve each step towards the bigger goal. And when you reach that goal, even if it’s as simple as working through the checklist around your numbers, celebrate. When we celebrate our wins we’re more likely to continue the process, and every small step you take will lead to big results.

If you’re interested in learning more about business planning, take my mini-course The Planning Formula or download my free planning guide here.

Review your prices

When was the last time you reviewed your prices? If you can’t remember the last time, or it’s more than six months ago, it’s time to bite the bullet and do a wholesale pricing review. That starts with understanding precisely what it costs you to run your business. With prices increasing left and right, it’s fair to say that the cost of doing business has probably increased for you as well. And while it might seem counter-intuitive to increase prices with a looming recession, you need to remember that you’re in business to make money, you’re not running a charity.

Be strategic about your prices increases though. You don’t need to increase all prices equally. Likewise, for your loyal clients, you may choose to grandfather your current prices, only applying price increases for new customers. It’s also a good time to deep-dive into your service offerings and if something isn’t working or it’s not turning a profit and you believe the market won’t sustain a price increase, then maybe it’s time to put pause on the service for the time being.

Need help with your price review? Then consider my signature program The Pricing Formula, it might be just what you need right now.

Create a budget and cash flow forecast

Budgets and cash flow forecasts are two both invaluable small business tools.

As the name suggests, a budget is an estimation of revenue and costs for a certain period of time, usually for the next twelve months. They provide target metrics for your business. Most businesses would typically create a budget towards the end of the financial year or right at the beginning of the next one, but there’s no hard and fast rule around the timing. If you don’t have a budget, think about creating one.

While it might seem overwhelming, it’s a much easier exercise than you might think. If you’ve got the data, you can’t review the last twelve months in business and base your next twelve months on that data. You’d look at the current costs of your overheads and business expenses to make sure you’re taking into account any new prices now applicable. The same goes for your income, if you plan to increase your prices, use those projected price increases in your data.

The key to a good budget is measuring actual data against it at the end of each month. Did you stick to your business budget? If not, why not? Was it unrealistic? Did costs increase? Was business down? Do you need to review the months ahead and make some changes?

While your business budget gives you revenue and expense turnover targets, cash flow forecasts can help manage the amount of cash that’s available at any one time to run your business. Cash flows deal in actuals. How much money you have in the bank, actual invoices out with clients and the upcoming bills you know you have to pay. In reality, the cash outputs are easy to determine. As business owners, we know precisely when our rent is due or when money is coming out of the account for wages or subscriptions. And although cash flow inputs can be a little tricky, we also know who we’re working with and can estimate expected revenue based off invoices in the system.

However, cash flow forecasts only work if you work with them. The key is keeping them up to date at least a month in advance. Personally, I like to create a cash flow forecast for a full year and then tweak it every month. It allows me to plan for big bills, know when I need to save and when I can invest in the business or take additional money out of the business.

So, my recommendation is to have both a budget and a cash flow forecast, especially as we head into tougher economic times. Need help with cash flow forecasting? Try The Cash Flow Formula, it’s only $27 for a limited time.

Can you change the way you work?

Do you still need that office space, or can your business operate in a full-time WFH arrangement? If that’s the way you decide to go, do you have the tech in place to manage remotely? Do you need to purchase equipment or subscriptions to online platforms that allow you and your team to work from home without interruption to your business? Perhaps it’s time to consider a new ‘normal’ for your business. It could be full-time work from home or part-time work from home and time in the office.

Review how you work and your standard operating procedures (SOPs). Where can you be more efficient? Is it time to outsource some tasks you’d usually perform so you can work on the things that are going to bring in more revenue, for example? If you don’t already have SOPs, create them. They’re a great way to communicate changes to your team, set the tone for future work and work with virtual assistance seamlessly during peak times.

 

Consider diversifying your services

If we’ve learnt nothing else after the last few years, it’s clear that diversifying business income streams can be the difference between surviving, thriving or failing. So, what can you do in your business to create new income streams?

Grab your team and start to strategise – two heads are better than one. What opportunities are there in your sector? How can you diversify your business and income streams to capitalise on those opportunities? What quick wins can you come up with and launch in the next two to four weeks?

Is there a product or service that you can add to your business? Can you create an online course perhaps or a new product? Is selling your product online an option? Can you create an upsell or a loyalty program? Perhaps it’s a new or limited-time service or a collaboration with another business owner.

Talk to your existing customer base and ask them how you can help them. Continuing to engage and nurture loyal customers with special offers, a gift with purchase, or free postage, for example, can make your community feel seen and appreciated. Remember 80 per cent of your business usually comes from 20 per cent of your customers, so take care of them.

Plan and strategise. Look for growth opportunities that might compliment your existing business. You don’t need to implement all of your ideas at once. Instead, take your time and ensure that each new idea you have is considered and strategically implemented when the time is right.

 

Talk to your staff

Keep communication lines open. Your team are the most valuable asset you have in your business, and it’s as important as ever to look after them. We’re all suffering from sickness-fatigue and the uncertainty that lies ahead. So keep an open mind to flexible working arrangements that will help both your business and your staff.

Staff at the coal-face might have some great ideas to help you streamline processes and introduce tech to make their job safer and simpler and save you money. Creating an inclusive and understanding culture is the key to success.

 

Are you a solopreneur or running a small business?

Why not consider gathering a team of like-minded business owners and get together regularly to talk all things business? It could be in-person or done virtually. But having a platform to honestly share business problems and help one another find solutions can make a huge difference to your business and your mental health. You might even consider collaborations or good, old fashioned service swaps to help you save time and money.

As a sole trader or solopreneur, the isolation can be challenging. If you don’t have any business buddies, why not reach out to your other business owners who inspire you and suggest creating a business mastermind of your own.

Know your obligations 

While there are no longer ongoing federal government stimulus measures to help business it’s important to keep tabs on what’s going on and what might be coming up to help you run your business. Check-in regularly with federal, state and local government websites to see what’s on offer.

Know your obligations for things like GST, PAYG (pay as you go tax) and SGC (super). Keep track of compliance due dates and amounts that you’re liable to pay and where possible stash the money away in advance to meet your compliance obligations. Consider calling in the experts to help strategise the way forward. A good accountant, BAS agent or bookkeeper is worth their weight in gold, even if I do say so myself. Click here for more details on Flossi Creative’s bookkeeping and BAS compliance services.

Final word

All businesses go through ups and downs, and local and international events directly or indirectly impact us all. Economic downturns and the resulting negative impacts on business are not unusual and those corrections it seem happen once every ten years or so here in Australia. And while we can’t control the bigger economic picture, we can, to some degree control our reaction to you. So, rather than sit on your hands and wait for the recession we might have to have, get proactive. Start now by considering some of the strategies outlined here and of course, if you need help, ask for it! Get advice from other business owners, and talk to professionals who can assist.

Regardless of where you are now, remember why you started your business. Decide what this next season of business will look like for you, what your success story looks like and what strategies you’ll implement to make it happen. Bottom line, it’s almost never too late to recession ready your business, so get started!

If you’d like more information on future-proofing your business or I can assist, please reach out via email at hello@flossi.com.au or book a discovery call with me here. 

Justine-McLean-Business-Blog

Hi, I’m Justine – I’m so happy to find you here. The Flossi Creative blog is a resource for the dreamers, doers and career crusaders. Enjoy!

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