10 Smart Ways to Prepare Your Business for Tough Times
hen Jess Miller started building an emergency fund for her print shop, she put just 10% of every bank deposit into her savings account. As time passed, she increased that amount to 15 percent. Now she adds as much as she can, once she’s handled payroll and paid bills.
“We’ve been so thankful to have that safety net multiple times. We've made important purchases to help our business grow, without needing to borrow money. You never know when you'll need your ‘emergency fund, but you'll be grateful you have it.”
- Jess Miller, CEO of Prestige Apparel
No matter the economic climate, the financial risks to your business can include cash flow issues, the inability to make payroll or pay your bills, or drowning in too much debt. It’s a smart idea to plan ahead for any tough times that hit your shop – so you can stay in business, for yourself, your employees and your customers.
10 Ways to Prepare for Tough Times
Here are 10 tactics to try, as you prepare for tough times to keep your shop afloat, no matter what happens.
1. Actively monitor and adjust your budget.
Besides staying within your budget, review your expenses regularly to see if there are places to cut or reallocate those funds towards better expenditures. Look at how much money you’re saving as well, to see if you can or need to add more to that pot.
“Business has always run hot and cold throughout the year. While we can see that our business is usually slower in December and January, other times of the year it’s completely unpredictable. Now, with a recession on the horizon, we have to prepare for lean times that might be ahead.”
- Michael Nova, director of Nova Custom Label Printing
2. Pay down your debt.
It’s always a good idea to work on paying off your outstanding debt. Doing so frees up more cash in your business to add to your emergency fund. If you have multiple debt sources, compare the maturity dates and interest rates to prioritize where you send your higher payments to. Paying off debt faster during good financial times can help you weather economic downturns.
Refinancing is another option to score a lower interest rate. Remember, during recessionary times, your “old” debt rate may be lower than a refinance rate or any new debt you incur.
3. Pump up your emergency fund.
Generally, financial experts recommend socking away funds to cover six months of your business expenses. Some companies even decide to apply for a bank line of credit, with a favorable interest rate, for extra cash flow.
“The amount of money you should have in reserve is all relative to your shop’s unique overhead and organizational needs."
- Lucas Guariglia, CEO and cofounder of Rowboat Creative
“We’ve been working with our finance team on ‘burn rate practices,’ which essentially determines how much we’re spending, how much debt might be accruing if we don’t hit sales marks, and ultimately what a financial runway might look like. This is all great to focus on, but it’s not set in stone. Being conscious of everything going on in your business is extremely important.” Miller points out that an emergency fund covers payroll, expenses, and also, machine repairs.
“If you’ve saved adequately, you’ll have cash to do any maintenance or repairs,” she says. “That way, should something happen, you can get it fixed right away and not wait for an approval on a loan.”
“When an important piece of machinery is down for several days or weeks, waiting for bank approval is much harder on your shop. That's a lot of income your company is missing out on making during that waiting period, so start saving now to avoid that scenario.”
- Jess Miller, CEO of Prestige Apparel
4. Cut where you can.
Part of your ongoing financial review should include ways to lower your expenses. Experts advise finding the most obvious discretionary costs first, like business lunches or expensive advertising. It’s a good idea to call your vendors periodically to see if they’ve got ideas to lower your costs or maximize your spend with them.
Look at other vendors in areas where you think you might not be getting your money’s worth. If you switch vendors, look at pay-as-you-go contracts vs. signing a long-term contract.
5. Make improvements during slower times.
During the pandemic, Nova’s shop experienced a drop-off in business.
“To take advantage of that, we revamped our website and blog to make it more user-friendly and up-to-date,” he says. “We also reviewed all of our procedures and made tweaks to how we do business. During leaner times, there’s much you can do to improve your business if you’re not doing as much production.”
6. Plan for the long term.
You might have your hands full with the present moment. Yet, it’s a smart idea for you to review your future plans periodically. For example, that includes thinking about what technology or equipment you might need to purchase to stay competitive. Some business owners review “what if” scenarios to play out how they might handle a 10%, 20% or even 50% drop in sales.
Part of this process is being aware of what’s going on within the business community. “I have conversations with people within and outside of our industry,” Guariglia says.
“This year has been odd, with the world very much still in ‘recession mode.’ While customers seem to have money to spend, they’re hesitant on spending bigger budgets. We need to weather this storm and stay focused. You can only force sales on customers so much.”
- Lucas Guariglia, CEO and cofounder of Rowboat Creative
7. Stay in sync with your staffers.
Turn an eye to your team to see where you can cross-train people, promote people, hire or even terminate to keep morale up. It’s always wise to invest in your employees – helping them to upskill via courses, mentoring and helping them learn a new job role. “Downturns are a good time to learn new skills that you can apply to your business,” Nova says. Remember, your biggest unforeseen events can be staffing in your shop, unrelated to economic conditions.
“You can never truly know how things will turn, with changes in personal lives or a shift in dreams. We can do our best to be close with our team, but life can change very quickly in so many ways. We’ve had situations where it was important to take care of team members for the sake of their health before even considering the business. Our people are our family, and a focus on people will always be most important for our shop.”
- Lucas Guariglia, CEO and cofounder of Rowboat Creative
8. Keep your pipeline full.
That includes marketing to new customers and staying in touch with existing clients. You can also ask customers for referrals, advertise your services on social media and emails, attend networking events, and cold call new businesses.
9. Always focus on lean manufacturing.
Rowboat has done extensive training with lean manufacturing organizations to help the team dial in processes and how they think about procedures. “Being lean doesn’t only focus on financials, since you hone-in on processes, procedures and communication,” Guariglia says. “In true lean format, you wouldn’t need to ‘speak’ to instruct a process, since it should sequentially lead itself and all team members understand their responsibilities.
“There are lots of times in business when we all just jump in the deep end and figure out a way to get it done. This is wonderful, and especially prominent in our industry. However, stepping back from these experiences and reviewing to fine-tune helps us get to where we need to be to operate in all economies.”
- Lucas Guariglia, CEO and cofounder of Rowboat Creative
10. Remember, risk is part of entrepreneurship.
“Being an entrepreneur means being in an unpredictable situation,” Nova says. “Business will naturally run hot and cold, so prepare for both. My personal motto is,
"Never look at adversity as the enemy, but look at it as your ally. The tradeoff for risk is freedom, so every time you weather adversity you level up to where you can handle more than you could before.”
- Michael Nova, director of Nova Custom Label Printing
Get Ready to Survive and Thrive
Before the going gets rough, start planning and preparing to weather any tough times ahead. That includes monitoring and adjusting your budget, reducing debt, building an emergency fund, focusing on lean manufacturing and long-term planning, and maintaining a strong team. “It’s always advisable to prepare in advance for difficult times because you never know what can happen,” Nova says. “The pandemic taught us that anything can happen at any time.”