How to make your business financially resilient

Get an accurate picture of your finances today

Planning ahead starts with a clear picture of where your finances currently stand. Revenue and profit will give you the best snapshot of the state of your finances. So start by looking at profit and loss statements from your previous two quarters to evaluate and compare your revenues, costs and expenses. What’s changed from then to now? What patterns do you see, and what’s causing them?

Now look at your cash flow plan. How are your receivables performing? Do you have cash on hand to cover your payables on or before they’re due? Do you have a cash cushion, and do you know how much cash you should have readily accessible in case you need it to keep running? Strive for consistency and predictability now so you can easily see it and take action when cash starts to slow down. Revenue, profit and cash flow are three key financial indicators you should regularly watch. You’ll learn what’s normal for your business, and you’ll be prepared to notice when things are slipping off normal. It’s an early warning system that can help you make decisions to keep your business healthy in a changing environment. 

Now that you have better clarity on these three indicators, you can start to think about how to respond to tighter market conditions when they come. Here are three suggestions to get your thinking started.

1. Identify ways to save without undermining the promises you make to your customers

Ask yourself what costs you can cut that won’t harm your ability to keep producing your product or service exactly as promised, always on time. Your customers will be more discerning when money is tighter, so keeping these promises is crucial in a tight market.

• Is there anything you're doing that’s not absolutely necessary to keeping your promises? 
• Are there any economies of scale you haven't used, like buying supplies in bulk or keeping back inventory of necessary components? 
• On the other hand, can you free up cash by keeping less inventory on hand?
• Do you have any month-to-month software or other subscriptions that could be switched to an annual plan?
• Is there anything you do that you don’t know for sure matters to your customers? Make it an ongoing habit to talk to them to find out what matters most so you’ll know what to keep and what to let go, if you must.

Performing triage on your finances by cutting jobs may seem like an obvious and impactful choice in an emergency. And, there may be projects or programs you need to set aside during a downturn so you can focus your resources on keeping production steady. But laying off people who are selling, producing and delivering your product or service isn’t always the right move. Can you cut payroll and still retain the capacity you need to do business? Will payroll cuts actually make it harder for you to meet your commitments to your customers? You may not want to risk it in a highly competitive market. And, if you do cut jobs, you might find it harder to staff up again so you can recover quickly and grow when market conditions change. So consider layoffs carefully and strategically before you act. 

2. Raise your prices.

Raising prices can be stressful. Many business owners avoid doing it because they feel uncertain their customers will tolerate the increase.  Take an objective look at the prices you charge compared with the cost of doing business. Decide now if you’re charging the right prices, making the kind of profit you want and need to make, and staying competitive. The best time to raise prices may be when you don’t feel forced to do it. Don’t let assumptions keep you from deciding to do what needs to be done. If you approach price increases strategically and transparently, you’re likely to have a much better outcome than you’d imagined.

One way to help ensure a price increase won’t drive your business away is to test it. Increase prices for a subset of your customers or shoppers buying your product on a certain channel. Then analyze the effect of the increase on sales. Did you lose 5% of the customers in the test group? That’s a good indicator that the increase will be tolerated by most customers. If you lose more customers in your test group than you can comfortably tolerate,  you can rethink your approach.

You can also ease customers into a new pricing model by offering a promotional period. Inform them that prices will be going up on a certain date, but they can still get your product for the same price until then. They’ll know what to expect, and they may even be motivated to stock up, spending more money now while they can still save.

The longer you’re in business, the more likely you’ll need to increase your prices as your own costs go up. But raising prices isn’t a substitute for growing your business. Bringing in more customers or adding new products or services that people want are longer-term strategies for true growth. A price increase could help you keep the lights on, but if you want your business to thrive, the most important thing you can do is to find ways to grow.

3. Look for ways to innovate

Don’t be afraid to get creative—see if you can generate some growth ideas that will serve your business well into the future.

Think flexibly about the costs associated with delivering your product or service. Could you change up your packaging, or adjust your product or service in a way that allows you to produce it sustainably while maintaining consistent prices for your customers? You may be able to find ways to automate certain parts of production, allowing you to increase output without increasing costs, or create a lower-price-point version of your product or service to appeal to a different market. 

Innovation means something different for every company, so open your mind to every aspect of your business model. And whatever you do, keep your customers’ satisfaction and trust in mind. Don’t bait and switch them with a lower-quality product. Don’t spring changes on them without communicating.

4. Focus on sustainability

External stressors like a natural disaster or an economic downturn can show you the weak points in your business. So, don’t just get through the hard times; seek every opportunity to make strategic changes that will keep your doors open for years to come. What sustainable changes can you make today that will help you plan to respond to changing conditions instead of just reacting?  When you’re ready to assess your finances, download our free Guide to Strengthening Your Financial System. And if you need more support, reach out to us for help.