Surviving the Recession: What to do When Cash Flow is Low
About a month ago, we shared a post on surviving the recession with two actionable ways to recession-proof your business. The first crucial step: control your cash flow.
Cash is queen, and cash management is the #1 skill that can make or break a business.
So with a recession on the horizon, tightening up your cash flow and creating a cash reserve is especially important.
It can save you.
It can save your business.
And it can also save the jobs of the people you employ.
In 2020, when money got tight and many people were faced with losing their jobs, the government stepped. And lots of business owners were able to stay afloat and retain their teams with the Paycheck Protection Program.
Unfortunately, with the recession hitting now, no such support is heading our way. And if your cash flow is already low and you’re feeling the pressure, me telling you to build a cash reserve doesn’t exactly help, right?
Deep breath. You’re still okay.
Yes, having a cash reserve going into a recession is ideal! But if it’s too late for that… today, we’re diving into what you CAN do now.
Option 1 for Surviving the Recession with Low Cash Flow: Cut or reduce all possible expenses
I may sound like a broken record here…But the fact is when cash flow is low, it’s time to tighten up where your money is going ASAP.
Laying off or losing team members is the short path to saving big money. But it also guarantees a longer path to recovery. That’s why I always recommend retaining your team and the talent in your business whenever possible because they are going to help your business serve your customers and maintain the possibility of growing.
There are other places you could make cuts in order to survive the recession. Here’s a checklist to get you started:
Cancel all subscriptions you are not currently using
Delay projects that aren't directly tied to new sales
Look for other expenses you could eliminate or scale back
CFO Tip: I recommend doing a review of your subscriptions and automated charges at least quarterly. I’ve done an expense review regularly this year and the results are solid. In total, I’ve reduced costs by $1,400 per month. Over the next 12 months, this will add $17,321 to my cash profit. (As long as I don’t spend it elsewhere!)
Option 2 for Surviving the Recession with Low Cash Flow: Pricing: Can you raise prices without negatively impacting your customers and sales?
Another option for increasing cash flow is to consider increases in your prices.
This is always a sensitive option since higher prices could also mean lower sales volume. However, given the general rate of inflation, you may need a price increase to offset increases in your own costs. To prepare for possible increases review the Four Pillars to Profitable Pricing Strategy
Tread carefully with price increases and check in with your top customers and clients before making any big changes.
CFO Tip: An alternative to increasing prices may be to look hard at the cost side of your products or services and find ways to save cash by improving efficiency. Efficiency gains made during a downturn will provide your business with long-term profitability improvements that will serve you well post-recession.
Option 3 for Surviving the Recession with Low Cash Flow: Pivot your products or offers
If you see an overall trend in lower sales or a decrease in the number of people able to invest in your offers; or you know they can’t afford an increase in your pricing, it may be time to pivot. Think about how you can switch up your offer or positioning to play in a space where people are spending money today.
While you’re tightening your spending to survive the recession, other business owners and consumers are also being careful about how much they are spending. However, this doesn’t have to mean you completely lose out on serving these people and businesses!
Back in 2020 restaurants switched to meal deliveries and distilleries switched to making hand sanitizer. These pivots were a direct response to the COVID shutdowns and kept the cash flowing in businesses that were otherwise directly impacted.
So how can you pivot your services to create new offers that serve people where they are today? One trend I’ve seen is companies breaking products down into bite-sized pieces and making them available at a lower cost. For service businesses, this means creating offers that people can invest in and see the quickest return on their investment.
Here’s an example from our own business:
We are breaking our 6-month CFO Advisor program down into two smaller Meaningful Money courses plus a community. This means you can opt in for just the parts you need and want. After talking with business owners, we understood that what’s needed now is quick, action-oriented support to help business owners up their financial game and a financial plan in place ASAP.
So, we pivoted and created 2 short courses that will deliver just what is needed:
Meaningful Money Essentials course that will help get business owners recession-ready in just three weeks! (starts in January). Essentials will help owners get solid numbers from their financial reports and create and use a cash management plan like the one introduced in How to Use a Cash Flow Forecast.
Meaningful Money: Next Level will address longer-term planning and growth, and use financial information to make clear decisions quickly. (4-week course starting in early February). Participants will build a 1 to 3-year financial model and dive into using financial data to inform decisions.
Meaningful Money Community will be the place to get affordable CFO support for your financial decisions and building for social impact.
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Grab Your Spot on the Wait List Here
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