Much of the news in 2020 has been dominated by COVID-19 statistics, heartbreaking stories of hardship faced by individuals and business owners, job losses and so on.
It’s easy to be drawn into the negativity and start to flounder in crashing waves as the economic storm rolls on.
As an entrepreneur, what can you do to keep your business steady and steer it through the storm? Here are 5 tips for surviving a recession.
Look after your Mental Health
This can be a very testing time for all. Lockdowns, restrictions, changes in lifestyle, not being able to take refreshing breaks in the form of regular holidays, working from home with technology challenges while looking after the kids and home schooling adds to your mental stress.
Looking after your mental health is like putting on an oxygen mask in an emergency before you help others put on their masks. It will put you in a better frame of mind to cope with the challenges of running a business during a recession, so that you make rational decisions based on data rather than emotional decisions.
There are a number of resources available online to help you with this:
Maintain a Strong Team
During a financial crisis, it is intuitive to cut back on expenses. And you must. But it would be unwise to cut some important expenses at the detriment of your business.
2 of the most important resources you will require in order to survive a recession are:
(a) talented staff who will throw their weight behind you and keep your business going and thriving, and
(b) a good accountant who looks beyond compliance/taxes and who will focus on forecasting and budgeting as your virtual CFO.
Your team should have regular scenario planning sessions, so that the business is ready to take swift action when circumstances change. Questions to ponder on include ‘What if revenue falls a further 10%?’, ‘What other products or services can we offer to improve profitablity?, ‘What if there is another lockdown lasting 6 or more weeks?’, ‘What if we have to shut for a deep clean due to Covid-19 outbreak on our premises?’, ‘What if some of our clients go belly up?’, ‘What if our supplies are delayed?’, etc.
In the process of asking these questions and determining the appropriate response, you will be sharpening the saw with new product development, streamlined processes, improved client base with more profitable clients, and so on.
Build a Cash Safety Net
During good economic times, it would have been prudent to build up a cash safety net in the form of an emergency fund and to set up finance facilities (eg. overdraft, line of credit, etc.) for your business to draw upon during times when cash flow is tight.
However, if you have not done so prior to the recession, then it is imperative to take a step back and work out which expenses are discretionary and can be safely reduced, so that you are in a better position to put aside funds regularly to build up your emergency fund, so that your business is bettter poised for surviving a recession.
Some examples of business expenses which may be reduced include rental (eg. moving to smaller premises or negotiating with your landlord for a rent reduction) and sourcing for cheaper supplies while maintaining quality as far as possible. Small cuts to expenses can also add up significantly eg. un-used software licenses, monthly retainers, dormant equipment, magazine/newspaper subscriptions and entertainment.
This is also the time to chase up receivables and seek longer payment terms from suppliers in order to improve your cash flow position.
It is also worthwhile keep an eye on all posssible Government grants and funding available, and submit your application as soon as you can to avoid missing out.
Step Up on Networking & Marketing
A recession is not the time to reduce networking and marketing expenses. This is the time that more effort needs to put into these aspects. It would be wise to continue to build relationship and, stay in touch with prospects, old acquaintances, etc. It is also the time to step on all aspects of marketing including digital marketing. Whilst many businesses are struggling to operate during the pandemic, there are a significant number of businesses that are still going at full speed, eg. IT businesses, mortgage broking, online stores, etc.
Keep Your Pulse on Your Financials
This is the very time that you need to check in regularly on your business’s financials. Schedule regular discussions with your finance team or accountant/CFO.
Ensure that you are receiving regular reports which should include your balance sheet, profit & loss statement, aged accounts receivable listing, aged accounts payable listing, cash flow forecasts, revenue projections, detailed expenditure listings and forecasts, etc.
The more you are aware and familiar with the numbers, the better poised you will be to make strategic decisions relating to your business to keep it nimble and agile.
Take this opportunity to improve your business and thrive. Best of luck!
Disclaimer: This blog post has been simplified with the aim of covering some ideas on how to survive a recession as an entrepreneur. This should not be construed as advice from Glint Accountants. We encourage readers of this blog post to contact Glint Accountants for advice on their specific circumstances.
Geraldine Lee is a Chartered Accountant in Singapore and a Fellow of CPA Australia. Besides being an accountant, she is a business owner with varied business interests. Contact us at Glint Accountants for assistance if you would like a hand with your business’s finances.