Every business experiences some level of risk, and smaller ones may have higher levels of risk in the event of a downturn. Without taking the right steps, you could be setting yourself up for failure. Still, improving operations and cash flow can help you prepare for a crisis or recession.
Stay Compliant to Avoid Fees
Staying compliant with local regulations can help you avoid fees that eat into your profit. If you have a fleet, there are likely plenty of requirements you need to follow. Many business vehicles are classified as commercial vehicles, which means you will need a commercial driver’s license (CDL). You can learn more about the different classes and what you should know about getting one.
Create Multiple Cash Flow Forecasts
Creating a forecast of your cash flow can help you figure out where your money is going. During a downturn, many business owners are anxious because they do not know if they will have enough money to cover the necessary expenses.
A cash flow helps you take action by creating a plan that will help you make a better decision. Take some time to look at future expenses and sales and how other factors may impact this cash flow in the future.
Accounts receivable and debt repayments can impact the future cash flow. Usually, it’s a good idea to predict cash flow about a year out, with the assumption that you will continue as you are without any major changes. But you should also run some shorter forecasts, especially for one month and six months from now.
Build a Contingency Plan
If you suddenly lost a large portion of your revenue, what would your business do? Ask yourself difficult questions like this to force yourself to figure out what is critical to your organization.
Creating a contingency plan can help you figure out what you would do if you experienced a difficult situation, so you do not need to make the decision when your emotions are involved. You might plan for things like cutting employees’ hours, reducing your staff size, renegotiating with your vendors, or reducing other operating costs.
Being proactive requires you to reduce costs with less drastic measures before a downturn happens. This can keep your operating expenses low, so it is easier to handle them if a crisis does occur. You can also boost your revenue by increasing productivity, which will either get you similar results for less effort or more results for the same amount of effort.
Create a Cash Reserve
An emergency cash reserve can keep you going for several months in case you need to weather out a crisis until you can get back on your feet to sustain profitability. However, saving six to nine months of operating expenses can be a challenging goal for many business owners. How much money do you even need?
Ask yourself what expenses you would have to pay if your income dropped to zero for a month. Consider variable expenses, such as supplies, as well as fixed expenses.