Preparing For An Economic Downturn: How to Ensure Your Business Thrives
Lauren Gall (she/her)
Co-Founder at VaVa Virtual Assistants | Empowering Directors & Executives with Fractional Support | Elevating Leaders in Social Impact & Coaching Spaces
The economy is something every business owner worries about, and for a good reason. Depending on your business and industry, economic changes can impact your profits, growth strategy, and operations. The economy shapes how you use data to make predictions, your ability to hire qualified team members, and the makeup of your target market.
While the economy influences how you run your business, making sense of the exact impact certain changes will have on your business is tricky. Like meteorologists, even economists are not always certain about the outcome of different trends. The fluctuations of the economy may be unpredictable, but that doesn’t mean you’re powerless as a business owner.
You can take action now to position yourself for success, no matter the economic reality. VaVa Virtual is invested in helping businesses grow, and we’re not letting the economy get in the way! Remember that adding a Virtual Assistant to your team is a simple and effective approach to hiring that can whether most economic challenges. To learn more about a Virtual Assistant can help your business, schedule a free consultation here.
WHY YOU SHOULD ALWAYS BE PREPARED
The COVID-19 pandemic gave us a great case study for why being prepared matters. The impact on the economy was unprecedented—so much so that most economists are still trying to predict the shockwaves that will continue for years. Without reliable data to evaluate, it’s pretty much a wait-and-see game. Not very reassuring, we know, but that’s exactly why you should prepare your business now and remain on your feet.
Imagine living on the Florida coast and not weatherizing your home before hurricane season. Sounds crazy, right? Shuttering your home is a no-brainer. Well, it’s the same for businesses. Preparing for economic challenges—or other unexpected bouts of turbulence—is a no-brainer for business. Much of what you’ll do to prepare for an economic downturn will also help your business handle other road bumps, such as new laws, competitors, or technology that could disrupt your industry.
One of the most important reasons to be prepared is for your own peace of mind. Once you stop worrying about the economy and do something about it, you’ll feel reassured. Not only will your business be ready with the resources to withstand a crisis, but you’ll also have a planned strategy to enact if that does happen. Without needing to waste time figuring out what to do, you’ll already be a step ahead. And, as you’ll see below, a Virtual Assistant can be a key figure in your strategy.
SIGNS THAT AN ECONOMIC DOWNTURN IS POSSIBLE
Keeping tabs on the economy should be part of your regular analysis of the industry and competitive landscape. Recognizing that your business doesn’t operate in a vacuum will help you make smart business decisions. However, tracking the economy can be intimidating and confusing. Everyone seems to have an opinion, and it’s hard to suss out who might be right! We recommend finding a specific publication, newsletter, or journalist that you trust. This will help you get a consistent view of the economy each time you check in—whether you’re doing it yourself or relying on your Virtual Assistant to keep you updated.
When evaluating the economy, keep track of these warning signs. These changes might indicate that the economy is approaching a downturn:
Set aside time to do research once a quarter. That way, you won’t be blindsided when a downturn starts impacting your business. It’s easy to get lost in the day-to-day and forget to lift your head up and check out what’s going on around your business. Add this research to your calendar, or better yet, get your Virtual Assistant to handle the research and report back.
WHAT TO EXPECT DURING A DOWNTURN
Now, for the slightly scary part! Remember, knowledge is power. Knowing what to expect will only help you be better prepared—and less shocked—if a downturn does occur. Here’s the honest truth about what you might face.
The impact a downturn will have on your business really depends on the type of business you operate, including your size, industry, and customer base. Economic slowdowns are particularly difficult for smaller businesses that have less of an ability to withstand drops in sales and cash flow. That includes VaVa Virtual and almost all of our clients. We’re right there with you!
Most businesses will face lowered sales, cash flow, and profits as demand declines across markets, from consumer spending to businesses and other organizations. Often, clients or customers will be less willing or able to spend money with your company. If you’re a business with a longer sales cycle, you might experience a slowdown in invoices being paid. If you run a B2B business, your clients will be facing their own slowdowns and need to cut costs. Consumer spending will also decline as businesses tighten their budgets with layoffs.
Lowered revenue causes many small business owners to search for additional funding. Unlike publicly traded companies that can sell off more stock for a cash infusion, small businesses need to look for investors or loans. However, during an economic slowdown, interest rates will be high and securing a loan will be more difficult. Lenders become more conservative with which risks they will be willing to underwrite.
Lowered sales might increase your inventory which can force you to slow production. You’ll also experience a lower ROI on marketing and promotional activities. These are often the first budget areas that businesses cut in an effort to limit spending. Layoffs are also common, especially in service-oriented industries as businesses struggle to supply employees with enough work. Eventually, the rate of Chapter 11 bankruptcies will also increase.
Whew! There you have it. The good, the bad, and the ugly. “Where’s the good?” you might be asking. Well, the good news is that this blog post is all about being prepared ahead of time! Check out the next few sections to learn how you can avoid some of the uglier bits.
9 STEPS YOU CAN TAKE TO PREPARE
Let’s get prepared! This is the reassuring part. As we mentioned earlier, the steps you take to reinforce your business now will help you in just about any crisis, from a PR nightmare to losing your biggest client. With the necessary padding, you’ll be ready for it all.
Here are the steps you can take now to position your business to withstand an economic downturn:
1. CREATE A RAINY DAY FUND
This cash reserve will give your business relief during slower times. A best practice is to set aside at least six months’ worth of business expenses, but allowing for a year is even better. Not only will this help you manage during cash flow shortages, but it might also make it easier for you to secure outside funding if needed. Building this fund will take some time, so start as soon as you can! Remember that any savings will help even if you can’t put away large amounts; do what you can.
2. MANAGE SPENDING
From renegotiating contracts with vendors to getting rid of services that aren’t delivering an acceptable ROI, consider how you can reshape your business expenses. As your business grows, it can be easy to lose track of your spending and whether each expense is still serving you. We recommend taking a few hours on a set day per quarter (even when not in a downturn)to reevaluate and cut any costs that aren’t necessary or are not leading directly to revenue.
3. OUTSOURCE
Understand what areas of your business might be easier to outsource. Think about repetitive tasks that have to get done or daily tasks you don’t enjoy doing. Instead of spending time on backend tasks, outsourcing frees up your schedule to focus on finding leads and generating new business. From email and calendar management to keep up with your social media, outsourcing can save you time and your business a considerable amount of money over keeping full-time employees or doing some of these activities yourself. Your time as a business owner is highly valuable to your business. For example, here’s an extensive list of ways you can use a Virtual Assistant to streamline your business.
4. FORM STRONG RELATIONSHIPS WITH CLIENTS
Focus on creating great relationships with your clients. This will help you maintain your client base even when your clients are cutting costs. If you give outstanding service to your customers, you stand a better chance of being the vendor that your client sticks with even when they have to cut their own costs elsewhere.
5. RE-EVALUATE YOUR PAYMENT TERMS
Consider how your cash flow will be impacted during a downturn. Will your current contract and payment terms still work? Play with the numbers and find out. If your sales drop by 20%, how will your business be impacted? Renegotiating your payment terms with your clients might give you the buffer room you might eventually need. Temporarily adjusting your terms might also be a way to help clients financially and allow them to stick with your business.
6. SET UP FINANCING EARLY
Stay on good terms with your lender to ensure you will be able to get funding if needed. You might consider refinancing your current debts to put you in a better position when the time comes. Ideally, start this process when the market is good.
7. TRACK DATA AND GET ORGANIZED WITH THE HELP OF A VIRTUAL ASSISTANT
An organized business is a lean business. With the help of a Virtual Assistant, you can make sure your business operates as efficiently as possible. From getting your record keeping on track to setting up a project manager for your team, VAs help your business operate smoothly. VAs work behind the scenes to help you take advantage of business data while making the best business decisions possible. Plus, VAs cost a fraction of what hiring a full-time, in-house employee would cost you.
8. PLAN FOR THE WORST
Create an actionable plan for a potential downturn that includes specific triggers. For example, if your sales drop by X%, you will begin implementing these steps. If you have a cash flow shortage that reaches $X, you will take this specific measure. If you need to cut spending, understand what you will cut under what circumstances and how much that will save you. Do the same for securing outside funding. Be as specific as possible with your planning. Consider getting the help of your financial advisor to make this plan to ensure it’s airtight.
9. PLAN FOR OPPORTUNITIES
Understand that fluctuations in the economy might also set you up for opportunities such as winning customers that your competitors lose. Keep your eyes open, so you don’t miss out. Consider what opportunities might arise during a downturn and create a plan for how you will take advantage of them.
Taking all of the steps ahead of time will save you the time when a downturn actually happens. By drawing up your strategies now, you won’t have to worry about making rash decisions at a time of distress. Know that these steps might take time. Slowly work to tackle them one at a time.
HOW A SOLID TEAM CAN HELP YOU THROUGH
An economic downturn is not the time to forget about your team. Remember that the economic slowdown impacts individuals just as much as it impacts businesses. Your team will no doubt feel the slowdown, too. Start by reassuring your team. Take them through your plan and make them a part of it. Giving your team this agency will help them feel like they have some control over the situation. Just like the peace of mind your plan gives you, being part of the solution will energize and motivate your team.
As your team enacts your contingency plan, ask them to begin building the scaffolding for projects that you can tackle when the economy starts to return. Again, this will help you be ahead of the game. You’ll be able to pull the trigger on projects as soon as your business gets some breathing room. In addition to staying future-focused and setting your business up for success, this gives your team hope for easier times ahead.
PROTECT YOUR BUSINESS WITH A VIRTUAL ASSISTANT
Especially over the last several years, weathering change has become more common than not. Thankfully, the support of a Virtual Assistant has helped so many of our clients feel stable even when everything around their businesses seemed unpredictable. That’s because a Virtual Assistant’s main job is to make the lives of the entrepreneurs they work with easier. From organizing a hectic and shifting schedule to maintaining healthy client relationships and conducting research, VAs quickly become essential members of teams—especially when businesses face unpredictability.
Many business owners find relief in the support of VA during economic difficulties because they provide financial savings over the high cost of traditional or full-time help. Hours are also flexible, meaning you can shift to fractional support. For example, if you’re used to getting 40 hours of help a week, shifting to 30 hours can help you cut costs while still getting the assistance you need. That means you won’t experience a huge disruption in calendar management, social media marketing, and other tasks that take you away from your day-to-day.
VaVa Virtual provides strong support for businesses at any stage of growth. If you’re a client concerned about maintaining your VA, contact your Account Success Manager to discuss your options. Your VA is ready to support you through tough times with flexibility and determination. Otherwise, learn more about adding the support of a Virtual Assistant to see you through every up and down. Schedule a free consultation here.
I really appreciated the insight you provided in your article Lauren. My favorite was building strong relationships with your clients (which can go a long way) AND planning for opportunities. The article was full of lots of nuggets!!