Connections for Success

 

09.16.19

Five Steps to “Recession-Proof” Your Business
Kenneth Tornheim

The manufacturing industry has enjoyed several years of prosperity. But no business is recession-proof. Proactive owners take steps, while times are good, to prepare for inevitable downturns in financial performance. Here are five strategies to consider.

  1. Monitor Cash Flow
    Shore up your cash flow management practices now. Project your cash flow three and six months out and have plans in place to cut costs or implement other measures at the first sign of a shortfall. It may also be helpful to run simulations to predict the impact of revenue decreases on your operating cash flow.
  2. In addition, review your payment terms with suppliers and customers. Now is the time to make changes, not during an economic downturn. Other strategies to improve your cash conversion cycles include implementing real-time billing practices, offering early-bird discounts for paying within 30 days and facilitating online bill payment for customers.

  3. Manage Debt
    It is best to negotiate with lenders from a position of strength, rather than waiting until you are strapped for cash. Therefore, now is the time to apply for lines of credit or increase your existing credit lines for access to working capital when you need it. Also consider paying down debt during prosperous times to help your business weather the next recession.
  4. Create Flexibility
    Build flexibility into your operations so that you can scale down quickly if necessary. Possible strategies include:

    • Increasing overtime rather than hiring new employees;
    • Using independent contractors for cyclical or seasonal work;
    • Outsourcing non-core functions; and
    • Leasing rather than owning equipment and facilities.

    These techniques essentially convert fixed costs into variable costs enabling you to react immediately to changing economic circumstances.

  5. Strengthen Your Supply Chain
    Develop strong relationships with your suppliers and vendors to help you stay informed about market developments and get deliveries when supplies are short. Consider entering into long-term contracts to ensure a steady flow of materials.
  6. Invest in Smart, Consistent Marketing Campaigns
    A recession is when you need marketing the most. After all, you and your competitors may be vying for a shrinking pool of customer demand, so it is more important than ever to get the word out about your products and services.It is also important to make cost-effective marketing decisions. For example, depending on your target market, direct mail advertisements and catalogs may be more expensive (and less effective) than social media campaigns and online catalogs that can be updated based on market conditions.

Not sure where to start? Contact us to brainstorm ways that your company can minimize the adverse effects of an economic downturn.

For more information, contact Ken Tornheim at ktornheim@orba.com or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.

© 2019

 

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