Financial Tips For Small Business Owners To Withstand Tough Economy

We live in a dynamic world where business and economic cycles are always in motion. Every industry and economy goes through ups and downs. The last few years were like a stress test as one event after another brought major swings in the business cycle. First was the pandemic, then high inflation, and then decade-high interest rates. These events shook the biggest companies as demand and supply changed drastically through these cycles.

Some things are beyond your control. All you can do as a business owner is sustain your small business through tough times. The good news is, there is always time to start working on your “economic escape plan,” even if you haven’t done so up to this moment. As an entrepreneur, you should incorporate business uncertainties and a tough economy into your strategy. 

Tips For Small Business Owners to Withstand Tough Economy 

Here are seven tips you, as a small business owner, need to adopt right away to give your business the strength to withstand economic headwinds: 

Build an Emergency Fund

The most important thing to do when caught up in a financial storm is to ensure the fundamentals of your small business remain strong. For this, you should have at least 3 to 6 months of your working capital stored in an emergency fund to keep your business operational even during low orders. Your working capital would include operating costs, utility bills, staff salaries, food and travel costs and other unavoidable expenses. And don’t forget to factor in inflation. You can start by dedicating a portion of your profits to an “emergency fund” every month. Ensure the sum is not too low to cover essential expenses. At the same time, don’t eat into any budget you’ve kept aside for business expansion to fill your emergency fund. Having too much of an emergency fund could lead to lost growth opportunities. A skilled business consultant can help you balance growth and stability. 

Invest to Increase

This tip, straight out of the books of Personal Finance #101, applies just as efficiently in business as it does in your personal money matters. Rather than keeping your emergency fund idle in the bank, give it the power to grow organically through smart investments. No matter how bleak the economic situation is, some sectors or assets do well. Having at least a part of your emergency fund invested across diversified asset classes gives it a better chance of growing. Tax-savings instruments could further benefit your cause. These investments can come in handy and help you stay afloat in crisis. 

Most importantly, keep reviewing and upgrading your emergency fund to ensure it grows with the business.  

Managing Costs and Expenses

Apart from keeping a certain monthly amount aside, you can try cutting costs and channelling those savings to the emergency fund. You could consider monetizing unused inventory through discount sales and attractive offers to save on storage costs.  

Avoid Having High Debt Obligations

Small businesses often need debt to establish their foothold. If you have also undertaken any such debts, draw up a repayment plan to ease your journey rather than complicate it further in economic distress. The strategy is simple enough – pay off any high-interest debts first. Also, try consolidating loans or negotiating the loan terms in your favour wherever possible. With the burden of debt off your shoulders, it will be easier to tackle other operational problems. 

Diversified Revenue Streams

The silver lining to any economic crisis is that it affects different sectors differently. Consider diversifying your revenue streams across a range of products or services. For instance, if you own a retail store that sells sports goods, you could set up a coffee machine on the side and try serving some freshly baked bread or cookies to go with the hot coffee. You could also offer paid Wi-Fi services. That way, customers could come with their laptops to work and have a nice cup of coffee, even if they don’t buy sports goods. It will keep the money coming in and keep your store brand fresh in customers’ minds.

If you have a vacant meeting room, storeroom, delivery van, or other equipment, you can lease them out to earn some extra cash until you need it. 

Insurance and Tax-Saving Investments

Different types of insurance -property insurance and liability insurance – cover various types of risks. You could insure yourself against the risk your business is more prone to. For instance, a farmer could take crop insurance, while a lender could take credit insurance. A travel agency could take travel insurance, whereas a landlord has property insurance. A professional can guide you on which insurance to buy and how to use it tax-effectively. You could also explore other tax-saving options with the expert.  

Innovation and Adaptation

While an economic downturn is never smooth sailing, it can also be an opportunity to review and rearrange your business. As mentioned, financial difficulties often force consumers to change their preferences or buying patterns. You could also observe and try to adapt your business to the changing spending patterns rather than wait for the phase to pass. You could also use it to innovate and upgrade your product. You could create an online store by registering with an e-commerce site to reach a wide customer base. Adopting a digital payment system would further simplify the process of online orders. You could also advertise your products on social media.  

The good thing about a rough economic phase is that it eventually ends. If you manage to keep yourself and your business afloat through it, chances are you will get through to the next phase of new growth opportunities.

Contact Hagar Liao CPA Professional Corporation in Oakville for Your Financial Planning Needs

A skilled business consultant can help you through different business and economic situations by identifying the scope of improvement and new opportunities that best fit the situation. To learn how Hagar Liao CPA Professional Corporation can provide you with the best business consulting services, contact us online or by telephone at 289-803-1818.