An unfortunate reality of owning a small business is having to prepare for the worst. This is a primary difference between businesses that succeed and those that fail. The latter group prioritized the need for security and took measures to minimize the likelihood of an industry-related crisis as much as possible. Even if such an event never occurs, knowing you are prepared takes a massive weight off your shoulders that could be seriously hindering your concentration. While there are many ways to protect your small business from losing a major client or running out of money, you’re really only trying to fulfill a few central goals. Once you’ve narrowed down what those are, you’ll probably notice that they are strikingly similar to the same goals associated with overall business growth.
Here are three ways to make your business increasingly less likely to crumble in the event of a sudden crisis:
1. Always Have Cash On Hand
Rule number one for surviving a rough patch is having a sufficient amount of cash on hand. It doesn’t matter if you run an established business or have only been open for a couple of years. You must not only consistently build up your cash reserves but also keep track of all the ways you can access funding and how quickly you’d be able to access it. So, in addition to the balance of your business bank account, you must consider how much money is currently owed to you and how much money you can borrow from your various credit lines. Some business owners like to put their own money into their businesses when their personal finances are in the best shape.
If you don’t like what you see after examining these areas, you might want to think about a business line of credit. Unlike a traditional business term loan, a business line of credit can be used at anytime. This is why it is often advised to apply for a business line of credit when you don’t actually need the money. Once you are approved, you can tap into that line of credit whenever you want and use the funds immediately. Clients of United Capital Source regularly access business lines of credit following a change in demand, a key client going out of business, or a delay in compensation. If you look into your accounts receivables and discover unpaid invoices, it’s time to pursue accounts receivable factoring. Remember: the value of unpaid invoices decreases as time progresses. It could be worth losing a tiny portion of income to plug more cash into your business in a few days with minimal effort on your part.
2. Don’t Rely On One Customer
Though businesses are constantly urged to not put too much dependence on a single customer, nearly every business has one customer that brings in much more revenue than the rest. The danger of this situation, of course, is that it increases the damage in the event of this customer leaving or defaulting on payment for a service you’ve already provided. You need to know how you’ll be able to cover monthly business expenses should this scenario come true.
But before taking action, you can do a revenue report that will tell you how much revenue is brought in by each customer. Then, calculate what your operational funding would look like if the revenue from the top customer did not come in. If you wouldn’t be able to keep the business running and pay monthly expenses, you are left with at least three options. You can put extra effort into acquiring more customers, apply for a business line of credit, or use other forms of borrowed funds to ensure those extra efforts are worthwhile. An example of the third option could be using a business term loan or SBA loan to finance an extensive marketing campaign or to hire more salespeople to court potential clients.
3. Emphasize What Makes You Difficult To Let Go
While high quality products or services is undeniably important, they aren’t the only thing you need to build customer loyalty. Your business model must also have some sort of feature that dissuades customers from giving their business to a competitor. For example, you might have an invoicing system that automatically renews a longtime customer’s order every month unless the customer manually cancels the order beforehand. Leaving for a competitor would require extra effort on the customer’s behalf, and that customer is already busy enough.
If your business model is lacking in this area, make lists of what features your business offers that are the hardest to let go of. Then, make another list of the customers that would have the hardest time letting you go. You can either improve those features or instill more loyalty in those customers.
When a small business survives an industry-wide downturn, it’s usually because of at least one of these three strategies. Implementation may require a little help, but thanks to companies like United Capital Source, accessing that help is just a tiny step in this long-term process. Conquering industry-wide downturns is one of our specialties, mostly because our success is on the line too.