After the unprecedented events in 2020, the US economy is again hammered. At 8.2%, inflation has already sprawled further than expected. Estimates remain disappointing, although inflation appears to be in an Autumn lull. So, the Fed is trying hard to stabilize it by implementing interest rate hikes.
However, many businesses do not seem prepared for these overwhelming changes. With a looming recession, pessimism is evident among SMEs. In a recent survey, almost two-thirds of small businesses expect permanent closure due to inflation. It is a massive increase from only 35% during the first quarter.
In this article, we will help you make sound business decisions. We will focus on the areas you must fortify to make your business recession-proof.
Economic Conditions
The US economy remains volatile despite the cooling down of inflation in the third quarter. To fight inflation, the Fed raised interest rates by 75 basis points recently. Policymakers are doing their valiant best, but the outcome remains unknown.
Therefore, your business must be ready for massive changes. You must be extra careful if you have outstanding loans due to the higher cost of borrowing. Also, higher prices mean more expensive production inputs.
Keeping an eye on macroeconomic changes will help you make a sound business decision. For example, you can adjust your operating capacity and prices. You can even look for cheaper but quality alternative materials for your products.
Financial Health
In connection with economic conditions, you must ensure adequate financial capacity. Check your cash level. Will it suffice business needs and obligations in times of disruptions? The composition of assets will also give you a hint about your liquidity.
One way to determine financial health is to do the Acid-Test Ratio. This ratio is crucial for companies with high inventory levels. It shows whether the current assets, excluding inventories, can cover current liabilities. Other industries have different financial metrics. For example, banks check loans and deposits to measure liquidity.
Meanwhile, the Net Debt/EBITDA Ratio for capital-intensive businesses is an excellent financial indicator. It assesses whether the business generates enough income to cover borrowings or not. It is more essential today amidst interest rate hikes.
Moreover, you must assess historical performance using the income statement. It will tell you how market changes affect your business. It can also help you measure efficiency.
Which among your products generates the most revenues? Which among them incurs the highest costs? Can you limit your spending while keeping revenues unchanged? Can you adjust your operating capacity while keeping costs and expenses stable?
These are some questions you must answer, regardless of whether you are running a small-to-medium business venture, a large corporation, or even a franchise. You have to ascertain the challenges you must face to prepare yourself for the worst.
Labor Force
Your capital is nothing without a labor force. Your employees are the lifeblood of production. Without them, your resources will become a giant white elephant.
The Great Resignation continues to take its toll. Aside from wages, it affects productivity. So, it is a must to motivate employees in the best way you can. It will save you a lot of money and time for training newbies.
Of course, a competitive compensation package is helpful. But even if you cannot provide a salary raise, you can make them feel secure and important. One way is by hearing out their concerns and opinions to maintain harmonious relationships. And if possible, provide flexibility in the workplace. A recent study shows that 87% of employees prefer flexible work setups. Doing so can help create a vibrant work environment.
Investing in the right technology and support infrastructure to streamline processes can also help ease their burden. It even improves the quality of products and services.
Customers
While you and your employees can assess business strategies, customers rate the quality of outputs. Their perception has an impact on your performance. So, you must try to get in touch with them often. You can communicate with them before and after you release your new product or service. Their feedback can help improve products and services.
For many businesses, surveys and product validation are the typical methods. But for more precise and comprehensive responses, Quarterly Business Reviews (QBRs) are suitable. QBRs assess the value and quality of the product. It can also be an avenue for higher customer engagement. You may discuss the current gaps to bridge and goals to achieve. Will the product capture more demand and generate more revenue? Does it add value to the market? These are some questions QBRs can answer.
Strategies
Amidst the tighter competition, marketing is vital to establish your positioning. It helps capture the demand for your products and services. Even more important is that you update yourself with the changing market landscape. A great example of this is using ChatGPT for your email marketing. OpenAI launched the chatbot in November 2022 and 49 percent of companies in the US are already using it.
But before proceeding with your marketing campaign, determine your target market and locate them. If your target market is Baby Boomers, social media marketing alone may not work. On average, they only spend an hour on the internet. So finding their favorite social media websites can be challenging. YouTube and Facebook have the highest usage rate, with 72%, and 78%, respectively. The thing is, resources are more abundant today. You only have to learn to use them to your advantage.
Moreover, strategies can apply to pricing, which is more essential amidst inflation. Once you determine your peers and their strategies, find the best price for your products and services. That is how assessing your financial health can help determine reasonable prices. Prices must be flexible so you can adjust them according to market conditions.
Bottom Line
The economy poses more risks to businesses. But amidst the stormy market, you can do something to make your business stay afloat. There are effective routes you can take to avoid or escape potholes along the way. The fruits of your prudence and effort will materialize as well.
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