A financial crisis is challenging for any organisation, but small businesses are especially vulnerable in such a situation. They lack access to the same resources as larger companies, plus they need to be creative in order to survive. Market volatility and economic uncertainty have been at the top of the news lately with headlines about tech lay-offs, the economic downturn, and RBA rate hikes.
However, there are ways small business can continue to drive business success during challenging times.
- Prioritise profitability
Prioritising profitability instead of growth is essential to ensure your business continues to operate during turbulent times caused by rising interest rates. Small businesses should achieve this by focusing on growing and investing in their highest-performing products and services. This generates more revenue to help increase profit. Businesses also need to ensure they have sufficient funding for profitability; a very common pitfall of early-stage start-ups is a funding shortfall. Planning and accounting for additional costs that are often left out — such as marketing, labour costs, and insurance — help businesses identify how much funding they need to be profitable.
- Experiment with pricing strategy
Pricing is all about finding the sweet spot between turning a profit and enticing your target customers. As businesses continue to be affected by inflation, there is a need to review current pricing models and identify how to best reach your target audience. Businesses need to be willing to experiment with different pricing options and test what works best.
- Adopt a tiered pricing model: Offer customers a variety of prices based on certain features. These tiers allow your customers to make options that best suit their needs
- Offer competitive pricing: Track your competitor’s prices and ensure you are offering comparative pricing that pits your products against your competitor.
- Use early adopter discounts: When you are just getting started, it’s absolutely critical to get users to test your product and give feedback. Lowering your price or giving the product away for free will allow you to retain the original price as an anchor but communicate clearly the real value of your product offering
- Manage cash flow
Seasonal fluctuations can leave some businesses with quiet periods short of cash when bills come along as usual. A strategic approach to cash flow management can prevent this from happening. This includes having an optimal working capital ratio between 2:0 and 1:2, which can help manage the day-to-day operations of running a business.
Working capital is used to fund daily operations and meet short-term obligations. If a company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments and taxes.
Businesses may look into getting a working capital loan. This is where funds will typically be credited to a business’ bank account periodically. An overdraft is another option. Unlike a working capital loan, it is a line of credit that is always available to access when the business is short of cash. Variables to consider include the interest rate, any collateral you will need to raise to access the funds, the loan’s term, fees, and the frequency of repayments. The right path for your business when it comes to cash flow funding will depend on the industry in which it operates, the risk appetite of the owners, and the maturity of the business, as younger businesses tend to be more inclined to pursue growth opportunities than more mature ones, though there are notable exceptions.
- Take a fresh look at expenses
It’s a good time to review your business expenses and look for opportunities to save, especially on the fixed overheads your business pays every month. Start by reviewing your profit and loss statement to identify the areas in which you are spending the most, then work your way down the list from the highest costs to the smallest. Here are some of the ways you may be able to save:
Check you’re getting the best deal on basics such as your phone and internet, energy and insurance. Switching providers can be an easy way to save money.
If you’re renting a premises, use the next lease negotiation to ask for a rent discount or a bonus period. Alternatively, if you’re one of the many businesses whose staff are now working partly from home, consider whether you can move to a smaller office with shared desk space, or sublet space to another business. Look for opportunities to outsource activities that can be done at lower cost by outside providers so your staff can focus on your core business.
- Create a working capital buffer
Having extra working capital on tap is a great way to protect your business from unexpected expenses and cost increases, so you can continue to pay the bills while you adjust. Here are some options to consider:
- If you have a variable rate you can use any spare cash to make extra repayments on your loan, reducing your interest costs, then redraw funds when you need them
- A Business Overdraft can help you access funds instantly when you need them, then repay them at your own pace, while only paying interest on the amount you use
- Stream Working Capital can help you unlock the value of unpaid invoices by borrowing against them, then repaying the funds when you get paid
- Rethink your business strategy.
As a small business owner, you’re probably looking for ways to stay afloat in the face of inflation. Here are some things to consider and apply to your business:
- Rethink your business strategy. While it may be tempting to hold on as tightly as changing your product offerings or even switching up entire aspects of how your possible to what’s worked for you in the past, now is the time to think about how you can adjust your business model and adapt it to current conditions.
- Think about what makes your business run efficiently—and see if any improvements could be made there. For example, are there parts of operations that could benefit from automation? Are there any areas where technology has improved since its inception? Taking an honest look at these things will help ensure that costs don’t spiral out of control while capturing opportunities for growth at the same time.
- Look at how people do things today versus how they did them ten years ago—and consider whether those differences would make sense for your job description or even just general office life (emailing documents instead of printing them off manually).
- Build up cash reserves
Begin with financial planning for small businesses, which involves evaluating your current status, establishing your objectives, and deciding your next steps. It’s recommended that you go paperless with your transactions and documentation where possible too. Sometimes, it’s a good idea to rent equipment rather than buy as well.
Remember to ask your long-time suppliers and vendors for any discounts or promotions. To reduce debt, communicate with your lenders about refinancing. If you have multiple loans, look into loan consolidation programs which allow you to group them together for a single monthly payment.
- Focus on Customer Retention
It’s nice to get business from seemingly nothing but remember to nurture the relationships with your existing clients too. By building loyalty with your customers, they’ll refer their friends and relatives to you in the future. They’re also likely to get your other products and services since they’re familiar with you.
Though it may sound surprising, one of the best customer retention strategies for small businesses is embracing complaints. Companies are often judged on how they handle complaints instead of the original problem itself. Hence, make it easy for clients to give their feedback and voice out their concerns. Next, promote after sales products and services.
- Invest in Marketing
Reduced income and access to financing means you have less cash available for keeping your company running. Typically, marketing is one of the first to be removed since many view it as a luxury. The truth is, without marketing and advertising you’re unable to attract new clients to offset loss.
Start with knowing who your buyers are and developing a niche. If you have enough money to spare, you might capitalise on long-term strategies like search engine optimisation. When your time, budget, and resources are limited, opt for short-term tactics like paid ads.
There are plenty of free tools on the internet so do your homework. Your website needs to be professionally made, however, to leave a good impression on all of your visitors. Try remarketing strategies that target customers who abandoned their shopping carts or stopped replying to your chats too.
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