As business cycles go, there will be times when businesses experience periods of growth, and there will be times when businesses face downtrends. Sometimes, the causes of growth and decline are factors external to the business, such as economic booms (for growth) or recessions (for decline).
The world experienced an economic crisis in 2008, which affected many businesses. There are talks at the moment that the global economy might be on a brink of another global crisis. What can a small business do to not only survive challenging times but also manage to grow during economic slowdowns?
As business owners, we want to be able to maximise the effects of an economic boom to a business—and also be able to minimise the effects of an economic recession to the business’s bottom line. So the question is, as a small business owner, what can you do to fight the effects of a slowing economy?
The key is to focus on the things that are working for you.
1. Strengthen your financial position: manage your worst customers
Common business advice is to keep an eye out on your cash flow. In a previous video, I discuss the perils of allowing customer credit to outpace your sales.
What can you do to work with delinquent customers?
While the common advice would be to drop your worst customers, consider why they might be paying past due their payment deadline. Quite a few businesses depend to some extent on all types of their clients to survive. In some industries, customers pay their bills on credit and them getting paid past their due date is the norm.
Consider managing your worst customers. One way to do it would be to impose penalty fees for late payments. Or offer them discounts or other benefits, such us first priority for new products, if they pay on time. Reward the behavior that you want.
Some companies, like Australian juice brand Emma & Tom’s keeps close watch of their cash flow. In fact, they recommend setting clear payment terms (in their case, it is 7 to 14 days), staying in close contact with customers, and collecting payment with new deliveries whenever. Their policy might be a little severe for most businesses, but then again they do sell fresh juices, which need to be sold before they expire. That policy works for them. The key is to find a policy that works for you and your customers—and they key is to communicate with your clients closely.
However, if, despite best efforts, the situation cannot be managed sufficiently, you may consider not working with them. I have come across businesses that did drop their worst paying customers, and the owners found out that doing so freed up resources that they channeled to other productive aspects of the business.
2. Strengthen your relationship with customers: listen and solve their pain points
Put differently, what else can you do so that they can buy more from you?
Is there a problem in your system that prevents them from doing more business with you? For example, is there a way to make your ordering process simpler? Maybe set up a special facility for bulk orders or creating an online ordering facility that can be integrated into your customer’s systems?
Maybe you have products and services that they might not know about but which can either solve their existing problems or can make life easier for them? Perhaps you just need to find a better way to communicate what your can offer, such as improving content on your website to reflect what your products and services can do.
3. Strengthen your network: find a niche or focus on going local
As a small business—or any business for that matter, what you don’t want is to be competing with everyone for the same pool of customers, particularly during economic recessions because that pool gets smaller when things get tough.
There is a 90-year-old small, independent toy store in Manhattan called Mary Arnold Toys that continues to thrive at a time when toy giant Toys ‘R’ Us went out of business and when Americans increasingly purchase online. The key for Mary Arnold was to understand and offer what customers need and want. These include focusing on toys customers won’t find in big retail chains like Target and Walmart. They strive to provide unique customer experiences, such as specialised events, expert advise and personal customer touch points that many internet retailers cannot match.
If a small business from across the globe can survive many threats to their business for almost a century, I am sure that you can find a range of strategies to thrive in a potentially slowing economy.
If you are interested to know more about what a business has to go through when facing exponential growth, you can download the first chapter of the book, ”$20K to $20 Million in 2 Years” absolutely free here. The chapter talks about the differences between a good and a great business and puts out questions that make you consider how you can turn your business from good to great.