Economic unpredictability seems to be a common theme throughout the 2020s. Many businesses have accepted this fact and have made efforts to become more resilient. Dealing with this uncertainty has simply become the norm, and we hope these six tips can help you adjust.
1. Maintain a Cash Reserve
One of the most important things any business can do is create and maintain a cash reserve. You never know when things will be slower than expected or when unexpected expenses will arise. While you have plenty of financial options to help your business succeed, having cash on hand is an important step toward security. A cushion can help you cover expenses and avoid debt during any economic downturn. Try to set aside at least 5 to 10 percent of your monthly revenue for your cash reserve so it can grow over time. It may help to cut back on existing expenses and automate transfers to get a good start.
2. Maintain Solid Customer Relationships
Keep customer relationships in good standing so you have business to count on when things get tough. Stay in contact and get feedback on what they’re looking for. Send out surveys to understand any concerns they may have, and engage with your best customers via email, social media, and loyalty programs. It can also help to track buying behavior and look for trends—good or bad—and strategize around these. Maintain the best customer service possible. Listen to what your customers say. Doing so may lead to new product ideas, a better pricing strategy, and stronger sales.
3. Focus on Cash Flow
Cash flow is critical to success, especially in a climate of economic unpredictability. Forecast often, and fine-tune your processes for bringing cash in as quickly as possible.
"Cash remains king during economic volatility. Businesses with strong cash positions gain both defensive protection and offensive capabilities when opportunities arise," says David Zybin at Forbes.* "But building this position requires deliberate action. Start by conducting a comprehensive cash flow analysis. Identify which revenue streams demonstrate stability versus volatility. Examine expenses through the lens of necessity versus optimization. The goal isn't merely cost-cutting but strategic resource allocation. Develop multiple financial scenarios with corresponding action plans. What specific steps would you take if revenue dropped 15%? What about 30%? Having these plans in place before they're needed prevents reactive decisions made under pressure."
4. Create New Revenue Streams
Having multiple revenue streams can be extremely helpful when things are uncertain. Doing so means you don’t have to rely on just one if something goes wrong. Have backup ways of bringing in money. Develop new products or services that complement your existing offerings. If you aren’t already utilizing digital channels, start doing so—whether it’s e-commerce or virtual consultations. This will help you reach a broader audience. Another avenue to explore may be offering a subscription or membership.
5. Prioritize Productivity
Productivity is crucial when things are unpredictable. Strong production will make you better able to bring money in when things are good, which can make your business stronger during slower periods.
"While you can’t control exactly how much of your product or service customers will buy this year, you can control how much you spend in the process of making and delivering it," says Escalon.** "By boosting your productivity, you can increase overall profitability, even as your top-line revenue declines. In times of volatility, narrow your focus to the activities that generate the greatest value for your business, with the minimum time, cost and effort. That means prioritizing products where you have a greater margin, and pushing pause on products that are still in development or selling at a loss."
6. Engage in Scenario Planning
Do scenario planning so you have a better grasp of your options and strategies in different possible futures. Conduct forecasts that can help you create different versions of your roadmap and make the best decisions possible no matter which scenario arrives. Develop several different scenarios: one that’s optimistic, one that’s moderate, one that’s challenging, and one that’s a worst-case scenario. Estimate the financial impact of each scenario, including revenue, expenses, and operations. Create a plan for each scenario so you are prepared no matter which one comes. This will help you make smart decisions rather than panicked ones—especially in the less favorable scenarios.
In business, things are never 100 percent certain, but economic unpredictability has been a constant in recent years with the pandemic, the rise of artificial intelligence, federal economic policies, and other factors. Businesses can be better prepared for challenges by keeping these tips in mind.
** https://escalon.services/blog/smb/5-small-business-strategies-to-navigate-this-unpredictable-economy
