How Your Small Business Can Survive An Economic Downturn


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When economists agree a downturn is inevitable don’t immediately fire all your staff and prepare for the worst, after all your staff are your best asset. With some careful cost-measuring measures to maximise your company’s efficiency, you can alleviate the need to make widespread redundancies later.

Financial experts offered the following advice for those companies intent on surviving an economic downturn:

Improve Customer Service
Understand your customers and what is happening in their markets. Anticipate their needs. Which customers do you want to attract and retain? Tighten up your quality control systems to avoid costly mistakes and guarantee customer satisfaction.

Manage Cashflow
If your company is a small to medium sized enterprise, you should concentrate more on cashflow than profits. Many profitable businesses face difficulties because they simply run out of cash. Managing your cashflow enables your business to keep trading and that means reviewing all the areas where cash can become stuck or ‘lost’. You need to identify potential cash bottlenecks within your company; review your investment in fixed assets, raw materials and saleable stocks; reconsider an appropriate system of stock control, and re-examine your credit system.

Halt Expansion Plans
If necessary you should delay any expansion plans.

Be Stingy With Credit
Avoid the temptation to win over large customers with generous credit terms because if the large customer gets into difficulty, your company will suffer the knock-on effects.

Review Your Business Plan
Revise your business plan regularly and update your visions, objectives and goals. Make sure everyone in the company understands the business plan and the part they play in it.

Look At Your Business Forecasts
Draw up a realistic business forecast and work out the ‘break-even’ point. Once you’ve updated your cashflow forecast, work out what impact a drop in sales will have on the business. This will provide you with a clear indication of how your business will shape up if trading conditions get tougher.

Review Your Stock
Reduce your stock levels or have more frequent deliveries to keep stock levels low. Consider selling off old or obsolete stock lines. Prioritise your fast-moving profitable items.

Know Your Best Customers
In many cases, 80% of a company’s profits come from just 20% of customers. Identify who your most profitable customers are and focus your efforts on them. See if there any other areas in which you can diversify so that if you lose a large customer, it won’t have a huge impact on your company.

Consider Your Suppliers
Does your company mainly rely on one or two suppliers? What would happen if you had to find alternative suppliers? Can you negotiate discounts for prompt payments to them? Can you negotiate better terms so that you keep your cash for longer before having to pay bills?

Cost Control
In which areas of your business can you save money? Consider bank and insurance charges and ensure you are getting the very best deal available. Look at rent, rates, power and lighting charges. Review your future expenditure/capital/equipment purchases. What about productivity, the use of temporary workers, performance-related pay, leasing unused premises/factory/office space?

Cut Your Bank Charges
Decrease the number of times you pay in and withdraw cash and cheques as your company is charged for each transaction that appears on your statement. Avoid unauthorised overdrafts or exceeding overdraft limits, as the penalty charges will quickly mount up.

Forewarned Is Forearmed
Review what happened to your business in the last economic downturn and determine where the most vulnerable areas where. If your company wasn’t trading then, find out what happened to companies in your sector of business.

Resist The Urge To Discount
Keep your prices up by adding value to what you sell. Avoid the impulse to offer ever-increasing discounts to retain customers. Even in a high margin business, you will need to win substantially more volume to keep the same net profit if you give a small discount.

Keep Lean And Mean
Whatever the economic climate, the need to operate a lean and mean business is always a driving factor for competitiveness. Businesses should try to see a difficult economic and competitive environment as an opportunity to improve their performance so that they can compete with the best.

Stay Calm
Don’t panic! Stay focused and keep your objectives in mind. Don’t forget to ask for help before things get desperate. There are many organisations that can advise and help you to navigate the stormy seas. You only have to ask. Above all listen to people who understand what your business is going through and who have valuable expertise to contribute. Then commit yourself to success!

Copyright 2005 Marie-Louise Small


For high-quality freelance writing at warp speed contact Marie-Louise Small, aka The Fast Freelance Writer, at


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