6 Critical Ways to Prepare and Grow Your Business in Uncertain Economic Conditions
The alarm bell is ringing more and more about a possible recession in 2023. Some key economic indicators show that an economic slowdown is underway, but as a small business owner, there’s still time to create a strategic plan that will allow your organization to not only overcome any operational challenges, but help you accelerate the growth of your business. These cycles happen every 7-10 years, and while unanticipated factors such a pandemic, supply chain issues, inflation or a decrease in consumer spending are generally out of your control, it’s important to focus on formulating and activating a plan that will allow your business to thrive and grow. This is a great time to prepare your defensive positioning and leverage economic and business metrics to your advantage, to take the initiative and attack your market to seize a larger share.
We’ve laid out the critical steps you can take in the first quarter of 2023 to ensure that you’re prepared to thrive in the face of any economic hurdles, addressing how to confront operational challenges, the importance of optimizing talent to enhance your bottom line, and lastly, if and how your thoughts of an exit strategy should shift at all.
Use strong, timely financial, operational and economic information to make informed business decisions
If 2022 taught us anything, it’s that operating expenses are going to continue to rise in 2023 and profits have the potential to shrink if you don’t plan carefully. Having good timely information is essential to making good decisions for today and tomorrow. Look at the trends of key metrics that measure activity, revenue, gross profit and cash on a weekly basis. In some cases you may have to look at trends as often as every day. Trends over time will tell you the true story of what is going on in your company, not a weekly spike here and there. Remember that increases in the cost of capital will impact growth and cash availability and that supply chain issues will continue to be a threat to growth and client retention.
This is a great time to get together with your leadership team to discuss financial and operational goals and outcomes, how you’re performing now and where you want to be in the coming months and year.
Everyone in your organization should have 2-3 key performance indicators that they are accountable for. These KPIs are metrics that they can impact every day. When coupled with the right commission for hitting performance goals, it will drive the right employee behaviors for companywide success. KPI results should be provided to employees early and often in a report form that allows the individual to understand their performance and what they need to do in order to reach departmental and company goals.
Working together with management and key employees to identify any blind spots or potential problem areas before they become issues could save you a lot of unnecessary costs and bring more revenue into the company. Create a cash dashboard that gives you at least a 13-week cash flow forecast, which will allow you to identify potential cash shortfalls and give you enough time to correct it through more aggressive collections or working with vendors to get some additional credit terms. It will help you make well timed decisions on when you can spend needed cash for additional staff, capital expenditures or operating expenses. This is a plan that you should be spending a lot of time with, evaluating it and updating it every week or month.
Look to trends, along with good financial and operational data points to plan your defensive and offensive strategies
This is a time to be proactive. With the right approach, you can prepare for a variety of different financial and operational scenarios. Don’t loosely think about what might happen. Really map out some potential hurdles and see the numbers. Sit down with your cash flow, balance sheet, P&L statements and operating metrics reports. Utilizing these reports will help you understand what the coming year might look like and adjust your business as needed to create the best possible outcomes for your company.
Examples of scenarios might include:
- Lack of product and long delivery times from supply chain issues combined with an increase in fuel, people, transportation and product costs can create the perfect storm to navigate through which can be exacerbated by a lack of good reporting.
- Calculating what your sales and GP numbers would look like if a few clients left and see how that would impact your overall operating expenses and impact to profitability.
- Talent acquisition, performance and retention issues and how it would affect production and growth plans.
This can be a painful exercise, But by anticipating the worst case scenario and knowing how you can combat it and attack it will drive better performance and profitability in your company and leave your competition in the dust.
Increase communication, accountability and motivate your team
Today’s highly competitive and uncertain market requires organizations to manage their talent effectively. Having a solid strategic plan will help you to educate and direct your staff for optimal performance. But for your business goals to be realized, you need to effectively communicate, recognize, and reward your staff for achieving key performance metric goals. And yes, employees are demanding more of their employers. You may need to offer better benefits to attract candidates and retain your employees, but in return — you need to require a higher level of performance from them. This is where accountability and communication become critical.
By communicating with your team regularly about organizational goals, expectations, and results, you will drive employee behavior to succeed in reaching your company’s desired goals. As part of a talent optimization strategy, positive performance should be reinforced and rewarded. Conversely, it’s important to address issues with low performers which can be more time intensive. It’s important to pay attention to employees who aren’t meeting your expectations and understand where they are missing the mark. Discover whether they need a confidence boost to get them in the right direction, or if a more serious intervention is necessary including termination. But you have to make decisions quickly and decisively based upon strong data and information.
When these factors align, your company will see an increase in sales and profits as a result of improved retention rates and increased productivity.
Outsource when you’re spending too much time ‘on’ the business and not ‘in’ the business
If you’re running a company while personally juggling finances, operations, human resources or maybe even marketing tasks, this is your sign to start outsourcing. You might think you’re saving money by handling these tasks yourself, but you’re actually losing time and money. Consider the variable costs vs. fixed costs when it comes to outsourcing to save time and money. In most cases, outsourcing is much more cost-effective than hiring a full-time employee. This is about outsourcing functions that are not core to your business. Ask yourself: What is the core competency of your business? And what are the core functions that should be done by your internal team? Everything else – you could be outsourcing.
Many businesses use the flawed approach of waiting until they are at critical mass and outsource as a way to deal with the overflow of work. By outsourcing to a specialist before your company reaches a breaking point, you’ll benefit from a skilled expert who can give their full attention to your task. Meanwhile, you’ll not only save money, but you can regain valuable time and efficiency back into your schedule to focus on growth strategy, culture and staff motivation. You’re likely a great entrepreneur, but maybe consider leaving IT, payroll and marketing tasks to the professionals.
You also may recognize that you need C-suite help but can’t afford a full time executive. In this case, it makes sense to use fractional support in the C-suite. It’s a great way to have experts help shape smart strategies for your organization and empower your team. With more than two-thirds of United States businesses outsourcing some aspect of their work, it’s an easy way to save some money and improve your bottom line.
Sales and customer service
Anytime there’s economic uncertainty looming in the air means it’s a great time to get aggressive from a sales perspective and over communicate with your clients. It’s important to understand areas that they may be concerned about and any problems they are anticipating. You can discuss expectations and how your product or service might be impacted – whether it’s supply chain issues or something else and how you can create a strategy with them to navigate through it. If you know of strong referral partners, you can show that you’re looking out for your clients best interest and refer them to partners that can help solve other challenges that are affecting their company that you can’t help with. This will show that you care about their company and their success and by doing this, you will become a trusted advisor for them and it will enhance your business relationship.
Is selling an option? Are you ready to sell? Is your business ready to sell?
If your company has endured a pandemic and you’re not sure you can face further economic upheaval with all this talk of recessions and ‘stagflation’ – should you consider selling your company, or wait for another economic cycle? Do you have the stomach or energy to go through it again?
As with all aspects of running a business, there’s a lot to consider, including market conditions. Just because you might be ready to sell, does that mean the right buyer will be there? Just because there is a downturn in the market doesn’t mean you can’t sell at a good valuation. Having the right advisory team in place can help you understand if it’s the appropriate time for you to pursue an exit strategy or if you would be better positioned to wait.
The right advisory team can guide you through an exit readiness assessment and identify potential challenges or weaknesses that could keep you from maximizing your value through a sale. They will also provide you with the plan to get you there. It’s important to stay on top of these types of issues and go through the exercise of determining whether you are in a strong position to sell your business, or if it’s simply time to get in ship-shape for an exit down the road.
Attacking your business defensively and offensively are time-consuming and detailed processes, but over time, they will pay dividends in terms of stronger resilience and a deeper understanding of your company. It’s easy to get caught up in the headlines about economic turbulence, but it is necessary to develop a plan with your leadership team and use timely, accurate information to make solid decisions. Additionally, it’s critical to the success of your company that you invest in a top quality, high performing talent that you communicate, hold accountable, and you reward for success. Doing this will lead to higher retention. With a strong team and a powerful business strategy, you can feel confident that your company is prepared to weather any financial storm and continue to grow profitably and maximize the value of your business.
By: Joe Raymond, Managing Partner of RVR Consulting Group
RVR Consulting Group provides your company with resources to support your vision and generate faster returns. By operating from both a strategic and tactical position, we protect clients during critical periods of uncertainty. Our services include advising, talent acquisition, sourcing fractional employees, exit planning, and selling your business. Regardless of your challenges, our firm’s experience is structured to make the road to your objectives faster, simpler, and more profitable. Our goal is simple: help you maximize the value of your business.
We are motivated to foster growth and develop opportunities for companies and their internal staff. Those economic impacts transcend into communities when our clients succeed and have invaluable, lasting effects.
For more information, visit https://rvrteam.com/contact/