Tips for Strengthening Your Business During Economic Downturns
The COVID-19 crisis and its economic effects have been an unprecedented challenge for many business owners. The current economic decline has brought up many new issues for Montana business owners. One of those issues is the impact of the global economy and how quickly what happens across the ocean can affect the United States and Montana. To weather an economic downturn, businesses need to monitor their financial position and innovate methods to minimize costs and maximize revenue.
Cash – Manage cash flow diligently
• Prepare cash flow statements with projections three months in advance.
• Reconcile all checking accounts making sure financial statements are timely, relevant, and accurate.
Accounts Receivable – Get aggressive with collections
• Examine aging receivables and call customers regularly to collect any outstanding balances.
• Watch for the credit worthiness of customers.
• On doubtful accounts, consider bartering for the balance.
• Remain engaged with current customers and check to see how they are managing during the economic downturn; this not only expands current customer relationships, but also may alert business owners to potential collection issues or
lead to potential new customer contacts and opportunities.
Inventory – Monitor inventory carefully
• During a slowdown, inventory may accumulate as sales slump; consider converting inventory to cash.
• Identify slower moving inventory items and keep those in smaller quantities.
Fixed Assets – Review fixed assets
• Evaluate current equipment and property for items that are no longer in use and could be sold or for items that are
not in use currently that may be rented.
Accounts Payable – Negotiate with vendors and take advantage of discounts
• Print out a list of payables and call vendors that may offer a reduction in price for settlement.
• Be aggressive in soliciting bids from contractors.
• Look at every invoice and take advantage of discounts that are offered for prompt payment.
Long Term Liabilities – Consider refinancing loans
• Call lenders to determine what options are available to potentially lower interest rates and lower monthly payments.
• Consider bundling multiple loans into one as this may reduce loan costs over time.
Revenue – Review pricing and revenue sources
• Encourage managers and employees to find ways to deliver current services to customers in alternative ways; and to
develop new services to serve existing customers and attract new customers.
• Evaluate current pricing structures, monitoring the industry and competition and make adjustments accordingly.
Payroll – Manage payroll wisely
• Consider reducing hours or implementing job sharing to reduce the impact of potential layoffs.
While no one hopes for an economic downturn, it is important for business owners to have a flexible game plan to endure such an event. By observing the economic environment and monitoring their financial position, business owners can adjust operations to weather the storm.
* This article is not a complete listing of all the details related to the tax topic and you should contact your CPA for a more detailed discussion regarding these items and how they may apply to your specific situation.