How to prepare to weather the storm of economic uncertainty
Uncertain doesn’t begin to describe the economic cluster we’re living right now. In fact, consumer confidence is the lowest it’s been since 1952. That means the likelihood of customers making large purchases (or, in some cases, any purchases) isn’t great. And that’s not great for your business.
You can’t control the variables that may cause a cash-flow crunch, but you can control whether you have a plan in place so that crunch doesn’t crush your business. If you do emergency planning before you find yourself in a hair-on-fire situation, you’ll be far more likely to get through it with your business and sanity intact.
A quick note before we get into the nitty gritty stuff. Emergency planning isn’t something you do once and then assume you’re prepared. Emergency plans need to be updated, because things change. Life changes. The economy changes. Your business changes. Your needs change. So, you need to reevaluate your plan at set intervals and adjust accordingly.
Ok, so what constitutes cash flow? Here’s the formula:
Gross revenue minus the cost of sales (labor, tools, software, etc., related to delivering for a specific contract) equals net income (not profit).
In a cash flow crunch, your profit percentage won’t be as high, which means you may not be able to move as much money to working capital and growth capital accounts as you’d like. But you still need to protect as much as you can to make sure you can keep the lights on during unpredictable times. You can only do that if you have a strategic plan in place.
Protect and preserve
Investors who see a rocky outlook go into what they call “protect and preserve” mode. For your business, that means decreasing expenses, which include money, time, and talent. You have four choices for how to minimize expenses:
- Keep: this should be reserved for essential expenses.
- Combine: for example, combine two labor positions (essential) into one position.
- Cut back: for example, downgrade your Zoom account or don’t renew unused URLs.
Cut off: for example, unfortunately, laying off staff. DO NOT cut marketing to avoid having that tough conversation with employees—a common mistake made by female founders. When you cut marketing instead of finding another way to protect and preserve, you kill the momentum you’ve gained and cripple your ability to recover when things get better. Be Henry Ford, who continued marketing his cars during the depression despite no one having the money to buy them. Every other car maker halted marketing. Guess which company rocketed ahead in a colossal way when the economy improved.
Reduce expenses
Here’s a short list of actions you can take to reduce expenses and keep money in the bank during a crunch:
- Reduce voluntary contributions (IRA, 401K, etc.) temporarily to increase cash flow.
- Consolidate or decrease debt (e.g., transfer debt to a credit card that offers 0% for a certain term).
- Suspend capital expenditures. Note that the tariff rollercoaster might make an investment now a good bet to avoid the risk of a future price spike. Be sure to evaluate the risk versus reward.
- Delay investments in business growth, such as creating new programs, which is the most costly business development approach.
Manage your risk
When it comes to risk, you should start low. Put aside working capital, in a savings account, for example, to create a safety net. If that well runs dry, pursue lower risk debt or pull money out of a retirement account. You could also take out a HELOC loan (while rates are low) or SBA 7(a) loan, which is partly government-backed and therefore lower risk.
If you’ve exhausted the lower risk options and you’re still in deep water, you’ll need to pivot to options that are higher risk. For example:
- A PayPal credit line, which is low risk at 0% if you pay off your balance in six months but becomes very high risk if you don’t.
- A QuickBooks term loan or line of credit.
- As a last resort, charge expenses to a credit card, but high interest rates could dig a hole that can be really tough to climb out of.
Let’s talk revenue
On the flipside of reducing expenses is maintaining revenue streams (as best you can):
- Streamline the way your money’s coming in from current clients. For example, ask them for a credit card to put on file so payments are consistent or incentivize them to use ACH by offering some kind of financial break.
- Downsell to current clients who are panicked and want to drop out. This is NOT a discount. If you discount, you train them to undervalue what you deliver. Maybe you offer a group option instead of 1:1 attention or move from do-it-for-you to DIY.
- Upsell to current clients who already have a high perceived value of your offering. This one is tricky during uncertain times but look for triggering events that may create an opportunity.
- Cross-sell to active and past clients. This is a lateral move that can help calm nervous clients by continuing the relationship but maintaining the cost, time, and talent they’re comfortable with committing to.
Watch the Cashflow Crunch Seminar on demand to learn more about how to make strategic decisions when navigating a cashflow crunch plan.
Doing all the things—but still wondering, “Am I doing it right?”
If you’re second-guessing your prices, cashflow, or whether you should pivot or push— you’re not alone (and you’re not doing it wrong). You’re just missing what every bold businesswoman needs: strategy + sisterhood.
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