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How Businesses Can Remain Agile Amid Economic Uncertainty
Jul 24, 2023
Most business owners can agree that we are living in strange economic times. Some industries are thriving while others are struggling to contend with high interest rates, lingering supply chain issues, and inconsistent consumer behavior.
Because nothing about the current economy is “usual,” it would be misguided to maintain a “business as usual” approach toward your planning strategy.
Luckily, the unpredictability of the moment doesn’t mean you are without a roadmap. By prioritizing careful planning and flexibility, you can weather the coming months with confidence.
Here are four ways you can introduce greater agility – and strength – into your operations.
1. Have a Plan & Prioritize Profitability
It’s impossible to make good business decisions if you don’t have a plan – and it’s impossible to have a solid plan without accurate information.
If you aren’t sure what your numbers are or can’t make accurate projections about what your sales will look like in the coming months, now is the time to do so. First, make sure your accounting is in order. Then, take an honest look at how resources are expended:
- Do you notice patterns in unnecessary spending?
- Do you have any bloated budgets that could be trimmed?
Also consider whether you are bringing in enough revenue to support the number of employees while still turning a profit. This number will vary based on industry and circumstances, but one general rule of thumb for service-based industries is that, per each employee, you should bring in two to three times their base salary in revenue to account for overhead, benefits, and profit.
Take the big picture into account, too. Analyze market and purchasing trends to determine realistic goals for the coming months. Gather information from industry groups and networks – learn where they have struggled or found success.
Once you feel you have accurate internal information and a clear picture of the market, pull together a budget and forecast for the next 6 to 12 months.
2. Keep Employees Content
Retaining talent should always be a priority but is more important during periods of economic uncertainty. Poor retention disrupts business continuity and can lead to unhappy customers and clients.
The bottom line? Don’t let your best workers get away. When times get tough, it can be tempting to fall into traps that work against the best employees.
The biggest trap is burning out employees as soon as business starts to dip. It isn’t uncommon for employers to push workers to their limits because they are hesitant (or lack the resources) to hire additional help.
Overwork can trigger employees to shop around for better paying and less demanding opportunities. It can also decrease the overall quality of work produced by the employees who do remain. Customers are also more prone to shopping around during periods of economic difficulty and may leave if the quality they are accustomed to declines.
Beyond avoiding overwork, be proactive about salary and benefits packages. Analyze the current labor market and adjust wages if they fall below those offered by your competition. While it may seem counterintuitive to give employees raises during periods of downturn, keep in mind that it is cheaper to retain good employees than to hire and train new ones.
If you decide to increase employee wages, think about from where the money will come. Consider whether you are charging your customers enough and determine if it may be time to offset costs by raising prices.
3. Communicate with Customers, Employees & Vendors
Communicate plans regularly to all relevant parties. While that communication may be challenging, it’s better than blindsiding customers, employees, and vendors.
Clients
If you know a price increase is coming, think ahead and let clients know well in advance – they will almost always appreciate the notice.
You may be tempted to hold off on communicating price increases in hopes the market will turn around but, if you have a plan based on accurate information, you should feel confident in your decision. Raising prices – and communicating the increase – is much less painful than going out of business because you couldn’t turn a profit.
During your conversation with clients, highlight the strength of your partnership with them, emphasize your value, and demonstrate the knowledge you have of their business. Clients are most likely in tune with economic trends and will understand the market pressure you are under.
The timeline for communication varies. If you are on a fixed price contract, raise prices only for new clients. If your contract will expire soon, let existing clients know a month or two in advance.
Employees
Keep your employees apprised of your plans and communicate any changes there may be to the volume and nature of work promptly.
If workers notice a shrinking backlog, for example (and aren’t made aware of contingency plans that may be in place) they may assume work is drying up and begin to look for new opportunities.
Vendors
When communicating with a vendor about your business’s declining performance, it’s important to be transparent and proactive. Here are some key points to address:
- Provide an honest assessment about the decline and the reasons behind the decline
- Explain the impact on your business and discuss your efforts to address the decline
- Explore potential solutions, which could involve renegotiating terms, adjusting order quantities or exploring extended payment terms
- Discuss the importance of maintaining a strong relationship to contribute to your recovery
Diversify Services, Products & Investments
Having a diversified business will help you pivot more easily if your market fluctuates. If all of your eggs are in one basket and the bottom falls out, you will struggle.
If your operations are inflexible the changes in demand or shrinking profitability will cause short-term consequences, like diminished cash flow and potential bankruptcy. But there are long-term costs, too. If you are forced to let employees go, and you eventually find yourself in a position where operations may be ramped back up, it will likely be difficult because the talent is gone.
The importance of diversification is true for both professional services and inventory-based manufacturing industries. If, for example, you are a manufacturer who mainly uses steel and the price of the metal skyrockets, you have little control over profit margins, especially if you have contract pricing agreements. Another example is if you are a marketing company who only does print services and competitors in your region offer more diversified services, your value could decrease and your profitability will likely take a hit.
Consider diversifying your assets as well: invest in stocks or real estate or keep extra cash on hand (if possible) to minimize risk. Manage your debt closely and avoid opening new lines of credit or using debt to service your operations.
Seek Expert Accounting Advice
Operating your business with agility and confidence takes careful planning. The foundation of that planning must be accurate financial information. If you’re struggling to obtain a clear picture of your numbers, consider seeking professional assistance.
Kirsch CPA Group can help. Our team of experts can supplement your team, review your accounting, and ensure you have reliable numbers. Once your information is buttoned up, our advisors can help you formulate a sound plan that will carry you through uncertain times.
Contact us to learn more about accounting outsourcing
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