In Good Times, Prepare For The Bad: Steps You Can Take Before The Next Economic Downturn
"In good times prepare for the bad, and in bad times prepare for the good."
If you've read my book, The Prosperous Leader, you know my father would quote this often. He believed that what goes up must come down and that what goes down will come up. He also believed that (most) money is made when you buy at the low and sell at the high.
According to a CNN report, we are in the second longest-running economic boom, but most experts agree that there will be a correction. Data shows that more than 170,000 small businesses closed down in the 2008-2010 recession.
How can you, as an entrepreneur, prepare for the eventual downturn while enjoying the current upturn? Here are some tips.
Consider Outsourcing Or Hiring Freelancers
Many businesses are hiring temps or outsourcing work. With unemployment rates low, salaries have risen, but not necessarily in other countries. Some are hiring back-end service in countries such as India, the Philippines and the former Soviet Union.
It’s become the freelancers economy. Take advantage of it.
Hiring freelancers has several benefits when the economy slows down.
Instead of taking them on as an employee with benefits, a freelancer is paid with a 1099, not with a W-2. So other than the end-of-the-year 1099 filing, there is no additional reporting.
Also, if at some point you don't have enough work for both full-time employees and freelancers, you can decide to keep all the work in-house. Or maybe you don't need so many full-time employees. In that case, you can decide to use the freelancers instead.
Most importantly, it's easier to fire or end an engagement with a freelancer without hurting your morale or worrying about lawsuits.
Many (if not most) employers dread firing people, and they often will keep people on payroll even though they can't afford it.
At the same time, many great employees-turned-freelancers don't want to be tied down to one place or even one company. They are comfortable working virtually, and you should be too. A virtual option has many benefits, especially in a downturn, as you don't need all that expensive real estate, and you can hire labor from anywhere. This is especially helpful if you're based in an expensive city.
Keep Client Relationships Strong
Many businesses you might be working with as a business-to-business (B2B) company might have multiple suppliers — especially if it's a great selling item — so as not to run out of stock. When a downturn hits, they will be examining who the suppliers are that add the most value. You want to be in the position to provide the best price and value to maintain that relationship.
Think on behalf of your client. How can they save money with your services? If your costs are lower, it should benefit your clients as well.
Reducing costs is essential, and having greater control over inventory can mean, for one thing, the ability to turn around your inventory quickly. This reduces the cost of holding onto inventory longer. It means keeping what's necessary in stock but not having too much stock, again reducing cost.
Today, many companies will share their data with clients and clients will share when items are sold. Ideally, when your item is off the shelf, you should be notified in real time and generate a replacement purchase.
Find Out Who Your A-Players Are?
Do you have the right people and processes in place? If yes, create a brain trust to think of ways to become leaner and meaner.
Going forward, this will be a competitive advantage. Take advantage of the robust economy and budget for training and coaching your employees to be even better. This way, you can identify the keepers if you need to reduce your headcount.
If you’re an employee, there is a lot you can do for your employer and for yourself. Think about how can you add value to help your company streamline. Look at what skills are transferable. In the last downturn, many industries were hit hard, and their employees didn't have the skills to reinvent themselves. Soft skills are especially important, as companies will always need good people with great work ethic, integrity, team spirit and a positive attitude.
Prepare For The Future Now
While investing in growth is a great way to build your company, invest time in strategically determining how the economy tanking will potentially affect your business and what you can do to build a recession-proof strategy. As the old Japanese proverb goes, "When you're dying of thirst, it's too late to think about digging a well." Economic downturns are tough.
But the good news is, when the going gets tough, the tough get going.
So what other tips are useful?
• Get lines of credit now, but don't use them until you need them. Banks are notorious for lending you money when you don't need it (like an umbrella when it's not raining).
• Don't buy equipment now. Wait for a softer market so you get better pricing.
• Remember, cash is king. I know some very smart investors who are sitting on millions of dollars, just waiting for the downturn.
Author and CEO of The Prosperous Leader. I help CEOs and their organizations prosper.