It’s natural for businesses to have slow periods where overall market conditions slow and business operations aren’t as strong. In these situations, there are certain actions that you can take to ensure your business makes it through these tough times.
An entity should always strive to be as efficient as possible, but a slow market is an optimal time to reevaluate business practices. Rather than cutting expenses, this can simply mean searching for alternative ways to do things that provide better results. For example, can you capitalize on purchase discounts or discover an optimal order quantity? How much time is lost searching for documentation, prior correspondences, or travel information? What is your product waste, and can it be reduced? Tightening up operations is a way to reduce expenses in a way that will also benefit your company in the long-term.
Review Segment Activity
All segments should frequently be reviewed to see if it’s more affordable to cut ties with the division. Unprofitable segments are more manageable during strong markets, as they have a higher chance of turning a profit. However, activity in these lines of business that result in a loss should be eliminated or slowed during slow markets.
Before ceasing a product or service, it is important to analyze the impact of allocated overhead if a line is stopped, as costs assigned to a division may still be incurred. For example, a bookkeeper may cut its tax services division. The bookkeeper will still need to maintain a business line, even if 75% of the phone expense was allocated to tax services.
Use Surplus Accounts
There is a reason why so many successful businesses plan ahead. Good times may not last long, but these periods should be used to hold the business over until the market picks up the pace. During strong periods, set aside cash or inventory that will not become obsolete or incur additional storage costs.
Use Credit Wisely
The use of credit during slow periods can be dangerous, but it can be beneficial in the long-term. Evaluate spending and cash flows before incurring more debt. Eliminate the inefficiency of late fees by only using credit on what can be paid for timely. One way the government combats economic recessions is by reducing interest rates. The theory is with lower interest rates, the economy will be stimulated as individuals and businesses have easier access to money. For this reason, loan terms may be more favourable during slow economic times. Don’t be tempted to take on a loan during slow market conditions unless it has very favourable interest rates in the long run, you can handle risk, and are able to make timely payments.
Slow Research and Development
An economic downtime is not an ideal time to incur research expenses. It is ideal if your business can expand its product or service line without incurring development costs. These types of costs may provide long-term benefits but only absorb cash flow in the short-term. Delay any research that requires cash flow until more stable economic conditions, unless your company’s survival depends on further product development.