Benchmark Business Group

The Best Way To Handle An Uncertain Economy Is To Be Prepared

November 22, 2022

Lions and tigers and bears, oh my! Lately, it’s been these three words: inflation and layoffs and recession (oh my!). While no one has a crystal ball that will accurately tell us what’s coming in the next few months or even years, we are hearing a lot of fear from the media and our clients. And it’s both good and bad. It’s natural and wise to be looking for red flags, and to be prepared, but every business is in a different situation.

Across the board we tend to hear from our clients that business is good right now, but there’s still concern that the economy will get worse. Prices are increasing. Interest rates have gone up. There are lingering supply chain issues and hiring continues to be difficult in many sectors.

So, what should business leaders do to prepare for the future in uncertain economic times?

Our advice: The steps business leaders need to take now, are ones that they should always have in place. It doesn’t matter if we’re in a great economy, a questionable economy or a bad one, the steps to prepare your business for the future are consistent and include both a rear-view mirror of your business and watching the road ahead to be aware of changes that might affect the future.

Here are a few insights to get you started:

  • Know your metrics. In every business there are metrics that will help you see quickly when – and more importantly where – there is smoke before you ever see the fire. While paying attention to the economy is good, the best data you can get is how your business is being impacted. And that is done through metrics. Watching your metrics for small changes can be predictive of bigger changes to come. Every industry is different but some of the metrics you should always be aware of include:
    • Total number of leads in your pipeline compared to previous time frames – typically leads will start to slow before sales do.
    • Cost of acquisition – is it taking more money to get one lead?
    • Closing ratio – when it goes down it can be a sign that your leads are more cautious, etc.
    • Cost of goods – is it costing you more to create/produce your product/service?
    • Average cost per transaction or client – are your customers buying less?
    • Customer turnover – are you losing customers at a faster rate?
    • Total sales
    • Accounts receivable - is there a dip in A/R that will impact future cashflow?
       
    • Examine your spending. While this is pretty much common sense during a rocky economy, we see too many business leaders who skip taking a hard look at their expenses when times are good. Every contract your business has should be reviewed on a timely basis. Some may need to be looked at every six months and some may only need to be looked at once a year or every other year. We encourage you to make a list of all contracts (both sales and vendor) and create a schedule for how often your business should be assessing them. As you look at them consider if it’s the best deal and don’t be afraid to ask for better deals. Too often, business leaders sign the contract or start using a vendor and then rarely, if ever, go back to look at the cost or alternative options. Alternative options are important to research consistently because it helps you stay on top of what is happening in your industry and will ensure that you get the best value for your business. Many companies will offer great deals to new customers and sometimes, if you ask, you can get those deals for being a loyal customer as well. In addition to pricing look at the agreements to understand how the deals impact your cash flow. Are you paying vendors early out of habit? Is it smart to slow down the payments and protect cash flow? Are you taking too long to collect from clients and thus acting as their bank? Is there a way to speed up your invoicing or collection process to increase cash flow?
       
  • Build your cushion. For many, times are good right now. This is the time to consider building a safety net in your business. How much cash should your business have on hand if things start to go south? How can you maximize that cash to create the best return for your business?
     
  • Consider your options. When you implement the above business insights, you’ll start to see a story, but how you react to that story is just as important as figuring out the story. For instance, is it time to implement a price increase? If leads are slowing, is it time to change the marketing message or even channels where you are marketing? If you need to hire, but are worried about not being able to sustain those positions in the future is there room to outsource part of the work allowing you to grow with less risk? Bring your accountant into the conversation about what you need to do for year-end and taxes. For instance, is it good to invest in equipment this year or is It better to grow your cushion in case things do take a turn for the worse?

We can’t tell you if things will get worse. We can’t tell you exactly what options to consider, because every business is different, and every industry is impacted by the economy differently. What we can tell you is that following the insights above will put you in a good spot to understand what is coming at your business and what options are available to you. It’s easy to worry but taking informed action is going to be your best insurance policy against an unsure economy.

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