5 ways to prepare your small business for the unexpected
When you’re running a business, dealing with unforeseen circumstances can be challenging. From the COVID-19 pandemic to a fast-changing business landscape.
Follow this 5-point plan to help you plan ahead and stay agile.
1. Identify your drivers and set red flags
While sales revenue is often the best indicator of how well your business is performing, other drivers can paint a clearer picture. Look out for these signs:
- Acquisition (fewer calls, demos, meetings booked, foot traffic).
- Retention (customers switching to competitors).
- Average sale (cheaper competitors and discounts).
- Gross profit (increase in costs or selling lower margin items).
- Web traffic and leads (distracted customers).
- Conversion (fewer leads become customers).
- Accounts receivable (customers paying late).
- Unhappy employees (staff turnover, increase in sick leave).
- Social media engagement (less relevance).
Choose which business drivers you want to monitor, set thresholds to trigger these warnings, and then take action to improve them as soon as they move past your threshold.
2. Create a cash buffer
If sales fall while expenses increase, your profitability could be at risk. Having a cash reserve buys you more time to fix what needs fixing. The best source of capital is what you can save internally. Most businesses can squeeze extra cash by tightening their tactics, becoming more efficient, or altering how they do business, including:
- Reduce the level of raw materials or inventory (use ‘just in time’ principles).
- Clear old or surplus stock (without re-ordering).
- Sell unused or infrequently used assets (lease back if needed).
- Renegotiate lower prices with all suppliers (don’t compromise on quality).
- Collaborate with other businesses (to share resources).
- Discount outstanding customer invoices (or use a factoring company).
- Conduct regular inventory audits to identify excess.
- Ask suppliers if you can delay payments or pay in installments.
- Request deposits or progress payments in advance.
- Switch from offering credit to immediate payments.
- Reduce fraud and theft.
Other more drastic cash saving measures might be needed. It may be time to scale back and remove the low profit-making parts of your business, or you could close certain locations, branches, offices, or product lines.
3. Find new customers and diversify
You’ll most likely have to look for new customers at some point. This might be because of new competition, slowing demand, new business models, or changing customer needs.
There could be a number of new customers hidden in your existing market. Profile your ideal customer– demographics, the problem they want solved, where they spend their time, how they prefer to communicate with you, and their buying cycles, and then:
- Target customers with similar needs to your existing profile.
- Find leads within your existing networks.
- Add content that solves customer pain points.
- Optimize your website with keywords for search engines.
One way to be more effective in finding new customers is tracking what marketing tactics worked. Don’t forget to ask for referrals–your customers are likely to know other people just like them and are often willing to vouch for your business.
If you want to explore new ways of finding new customers, consider widening your business model.
This might include:
- Expanding into different geographical locations, or franchising.
- Selling online.
- Collaborating with other businesses.
- Applying for government tenders.
- Buying competitors or complementary businesses looking to sell.
- Offering your product or service to other businesses to on-sell.
- Exploring overseas markets.
- Selling through third-party marketplaces.
Any tactic that gets you in front of a new customer or opportunity will be worthwhile.
4. Protect what you have
Existing customers tend to be more profitable and easier to sell to than trying to find new customers. It makes sense to safeguard your current client base from possible competitor action.
See if you can:
- Source unique products or services.
- Be the only approved vendor.
- Set up formal referral agreements within your industry.
- Build a well-known brand.
Anything that makes a competitor think twice before trying to compete with you is relevant.
If there are parts of your business that are critical to your success, consider legally protecting and taking action if anyone breaches your rights. Your Intellectual Property (IP) includes copyright, patents, designs, trademarks, trade secrets, and plant variety rights.
5. On-going innovation
Businesses that stand the test of time are often evolving and changing. For smaller businesses, the key to innovation comes down to listening to customers and looking for new ideas and ways to do business.
Whether you’re a baker, plumber, builder, or corporate professional, there are always ways to add something new to your skillset. The internet, apps, growth of online shopping and banking have changed the playing field.
If you need to find new products and services, a typical process would be to develop a prototype, research if there’s demand, test it with customers and then launch.
To discover new ideas, tap into what similar businesses are doing right around the world. Read trends online, look at research papers and see what’s affecting your line of work. Social media channels are also a useful source of information, so it’s worth following relevant feeds.
Finally, reach out to your customers and ask them what else they need, as well as what issues and problems you can help solve. They’ll also be the ones that have the most invested interest in your new ideas.