There will always be peaks and valleys while building a business. Sometimes, world events can impact your bottom line—like gas prices and consumer spending. While these may feel beyond your control, there are a few actions that can mitigate the long-term effects of these short-term realities.
The positives can be difficult to see during challenging times like these, but many great innovations and ideas blossom as necessity pushes us out of our comfort zones. Expansion may feel counterintuitive but keeping a growth mindset creates an opportunity to view the business from a new perspective.
1. Run a Financial Comparison Report
A great place to start is to run a Profit and Loss statement comparing this month, quarter, or year-to-date, to last year’s corresponding periods. It’s always good to have a point of reference to see what numbers have changed in the business. Researching these changes can reveal the causes for variances.
This exercise alone will allow those numbers to pop into view, creating a productive discussion for solutions and possible next steps. Here are a few sample questions to get the brainstorming started.
- Review the gross profit by product line. What information does that reveal?
- Are revenues higher or lower? What’s happened to COGS and expenses?
- Are those costs related to higher revenue, or have expenses in general increased compared to the prior period? Are the increases under your control?
- Does it make sense to adjust pricing on goods or services (temporarily or permanently) to include the increases? Will the marketplace allow it?
- Is this a good time to research new vendors, seek different processes, or automate some of your systems to reduce costs?
Now that you have pinpointed the data from your comparison reports, you can use this information to monitor your progress and make informed decisions. Suppose you have, for example, discovered increases in costs due to inflation and decreased customer spending due to uncertainty in the future. In this case, you can begin to plan strategies to take control. It is always best to meet the challenges proactively with thoughtful solutions rather than impulsively reacting to problems.
2. Start With Vendor Negotiations
Let’s start with gas prices. This specific challenge impacts customers’ buying decisions at the gas pumps and informs businesses’ acquisition, production, and distribution decisions. Fuel powers our global economy and affects our bottom lines, yet passing along additional fuel costs to the customer may not be the best option.
Successful business owners know that whatever the current “storm” (war, pandemic, recession, inflation, you name it), they can try negotiating lower costs and/or increasing revenues. The result is that they often improve their bottom line while also helping out their fellow business owners, customers, and employees. Staying in business is good for everyone. Even in normal times, it’s best to review contracts and costs with vendors on a routine (maybe yearly) basis. Sometimes these global upheavals create opportunities to support local vendors, save on shipping and freight costs, and perhaps even affect climate change.
3. Increase Cash Flow
You can increase your cash flow with a few simple changes. Good cash flow depends on two main factors: 1) Getting the money quickly and 2) Keeping that cash longer. Two areas directly impact cash flow: accounts receivable and accounts payable. Review A/R and A/P reports regularly to understand and gain the consistency to maximize your cash flow.
- Review A/R – Inflow of cash
Past due accounts happen, but reviewing customers in this category will give you the information you need to determine if they are responsible, profitable customers.
If invoices haven’t been paid within the agreed terms, you are, in essence, extending these folks a loan and have become their banker. Some of the customers may be worth the risk. However, if they are not, you may decide not to sell to them in the future. Another alternative is to set up a simple payment plan or offer a small discount for prompt payment to get the cash flowing back into the company. Always charge late fees for late payments. The banks do.
Remember: The shorter the payment terms from your customers, the quicker the cash is received, and the more money you have for paying your vendors, your employees, your own loans, and yourself (!) on time.
- Review A/P – Outflow of cash
Negotiating with your vendors for the best prices is just good business. If your vendor is unwilling to lower their prices, you might ask them for longer terms—particularly if you have great relationships, buy in volume, or have helped them through some rough spots.
Remember: The longer the terms with your vendor, the more cash you have available for your business (vendors, employees, etc., and YOU).
When It Makes Sense
Receive payments Quickly. Pay Suppliers Slowly.
4. Review Budgets – Have a Spending Plan
Considering current realities, this may be an excellent time to review and adjust your spending with your executive team. A budget is a great framework to work from, but when customer spending and escalating costs change substantially, it’s time to lock yourselves in a dark room and pull out the sharp pencils.
Budgets are used internally to monitor costs or ensure spending is aligned with the company’s values. External economic conditions can never be predicted and usually aren’t reflected in current budgets. With the data revealed in our comparison reports from #1, you and your team can adjust budget numbers to include the increases and decreases and keep the company on track financially.
If you don’t have a budget, use the information gleaned from #1 to get one started.
Budgets are a great feedback report and a road map for reaching company goals.
5. Improve Customer Service – Improved Relationships
High-quality interactions with people will always positively impact our lives, including our business relationships.
Everyone feels the stress of financial uncertainty. Investing in a bit of kindness and empathy will pay dividends in the lives of staff, customers, and vendors.
A few sample questions to get the brainstorming started.
- What solutions can we provide our customers during this time?
- How can we add more value?
- Is there a way to increase value and not necessarily increase costs to the business?
- How can we improve our customer’s satisfaction as he or she interacts with our products, services, and staff?
In Conclusion
Growing a successful business at any time will always create new challenges. Whether deemed good or bad, “feedback” can be used for greater awareness and input for better business decision-making. With a strong vision and good planning, business owners can weather almost any financial storm with understanding, courage, and kindness.
