Small Business Recession Hacks: How to Cut Spending and Build Cash Flow in 2023

 
With an uncertain economic future, small business owners need to take proactive steps to recession-proof their businesses and protect their cash flow. In our first article in this series on how to survive in a recession, we focused on creating an emergency small business fund. We now explore how to cut unnecessary spending and build your cash flow.

Whether you are just starting or have been in business for years, learning how to cut spending and build cash flow can be the key to surviving a recession. In fact, it is vital to running a good business at any time.

This article provides valuable insight into practical strategies that can help you reduce costs and increase your savings, ultimately protecting the financial stability of your small business.

How to Cut Unnecessary Spending to Recession-Proof Your Small Business

To prepare your small business for a recession, it is crucial to focus on cutting unnecessary spending and position your business for success. This means taking a long and hard look at where money is being spent and finding areas where it can be reduced or eliminated.

Start by evaluating all recurring expenses that are not essential for operations and consider whether they can be cut back or eliminated.

The best strategy is to think about making changes such as:

• canceling subscriptions,
• switching to cheaper suppliers,
• reducing staff hours.

Additionally, it would help if you looked into ways to streamline and automate processes to reduce the time and costs associated with tasks such as:

• accounting,
• marketing,
• customer service.

With careful planning and thoughtful decision-making, you can ensure your small business is prepared for a potential economic downturn.

Areas of Your Business to Evaluate and Adjust Spending

Small businesses are especially exposed to the financial impacts of a recession.

As a small business owner, it is essential to stay vigilant and regularly evaluate areas of your business where spending can be adjusted or reduced to minimize financial losses.

Evaluating and adjusting spending should involve analyzing all aspects of the business, including:

1. operations,
2. marketing,
3. customer service,
4. employees, and
5. IT systems.

It is important to prioritize spending to maintain essential services that benefit the long-term stability of your business.

During times of economic uncertainty, it is wise to focus on the essential areas for staying competitive and profitable.

For example:

• renegotiate contracts with suppliers,
• explore alternative suppliers, so you are not disadvantaged if any existing suppliers do not survive,
• explore alternative financing options.

Small businesses can protect their bottom lines by evaluating and adjusting spending strategically during a recession while still providing quality products and services.

Additional Ways to Cut Spending and Analyze Expenses to become Recession-Proof in 2023

1. Advertising and marketing: Analyze your current advertising and marketing strategies to determine which are most effective in generating leads and driving sales. Adjust your spending accordingly.
2. Employee wages and benefits: Review employee wages, overtime pay, bonuses, and other benefits to ensure they are competitive with others in the same industry.
3. Equipment and supplies: Review your equipment inventory to ensure that you have the necessary tools for each job role in your business. Evaluate the cost of supplies to see if more cost-effective options are available.
4. Technology: Investigate new technologies or software programs that could assist you in automating or streamlining operations and increasing productivity in your business. Evaluate the potential return on investment before making any purchases or upgrades.
5. Training: Assess the training needs of your employees to ensure that they have all the skills necessary for their roles in the company. Develop a continuing education and skill development plan that fits your budget constraints.

Tips for Cutting Costs Without Significantly Affecting Operations

Cutting costs without significantly affecting operations can be challenging, especially during a recession. However, here are some tips that can help you reduce expenses while still maintaining the same level of output:

1. First and foremost, review your current processes and identify areas where you could improve efficiency.
2. You may also want to consider outsourcing specific tasks or services if they would be more cost-effective than keeping them in-house.
3. Look into negotiating better rates with suppliers and vendors and take advantage of discounts or special offers. 
4. Ensure your staff knows the importance of staying within budget and encourage them to develop innovative ideas for saving money.

With these tips, you can reduce costs without compromising quality or productivity.

Unnecessary expenses can be one source of expense reduction that can help improve the bottom line.

Some examples of unnecessary small business expenses include

• Office Supplies: Eliminate office supply expenses by ordering supplies online in bulk or sharing supplies between multiple offices.
• Entertainment: Entertainment expenses should be assessed to ensure they are necessary for the business and not excessive.
• Travel costs: Travel costs can also be reduced by booking non-refundable flights in advance and being mindful of lodging costs when traveling. You may be able to reduce travel costs entirely and do Zoom meetings.

A small business can increase its profitability without sacrificing quality or service by being aware of unnecessary expenses and taking steps to reduce or eliminate them.

How to Increase Cash Flow in an Economic Downturn

Cash flow is the lifeblood of any small business, so it is crucial to have strategies in place to increase cash flow and protect your business from a potential recession.

Some tips to increase cash flow include:

• reduce expenses,
• diversify revenue streams,
• take advantage of government programs,
• invest in technology,
• use the 80/20 rule on your inventory, and have a sale to move any old or slow moving inventory,
• factor invoices (if you must, but evaluate the cost first),
• obtain a line of credit in advance to help you stay on top of your finances during challenging times.

With careful planning and foresight, you can ensure that your small business remains resilient during any economic downturn.

Don’t offer credit unless you absolutely must, and if you do:

• Ensure you do credit checks before providing credit, ensure your terms are understood and have a system for follow-up.
• Provide detailed invoices outlining your payment terms, such as due dates and applicable interest charges, to help ensure timely payments.
• You could also introduce automated payments where customers can set up regular transfers at pre-agreed intervals, making it easier and more reliable for you and your customer. This can be an excellent alternative for a business supplying ongoing services to ensure you receive regular payment while reducing the stress on the customer’s cash flow.
• Another option to encourage prompt payment is to offer discounts or incentives for early settlement.

By incorporating these strategies into your operations, you can make sure that customers pay quickly and efficiently to keep outstanding accounts receivable days low.

Different Methods for Collecting Payments from Customers

There is a saying that “you can’t make it too easy to buy.” In other words, don’t put obstacles in a customer’s way that stops them buying from you.

In the same way, make it easy for them to pay with multiple payment options such as credit card, PayPal, and direct bank transfers for customers to pay you.

Here are some potential alternatives:

• Use electronic transfer of funds at point of sale (EFTPOS) so that customers can pay you with their debit or credit card at the time of the sale.
• Digital payment services such as PayPal, Venmo, Apple Pay, and Google Pay provide customers with more convenient payment options.
• Use credit card processing services that offer secure online payment options and allow customers to pay with their preferred credit or debit cards,
• Streamline the process and ensure prompt payment by accepting cash payments or automatic bank transfers.

A small business needs to create an efficient system that meets its customers’ needs, to have a recession-proof business.

Conclusion

In conclusion, if the proper steps are taken, recession-proofing a small business is possible. Taking control of spending habits, setting up cash flow systems, and ensuring that income grows should be top priorities. It may take some time and effort, but taking these measures now can help avoid future financial problems.

This article is one in a series on recession proofing your business. Other videos in the series include:
How to Stay Afloat and Survive a Recession as a Small Business
How to Access Alternative Funding in a Recession
Recession Hacks: The Importance of the Right Mindset