6 Financing Tips to Help You Prepare Your Business for a Recession

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6 Financing Tips to Help You Prepare Your Business for a Recession

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In the business world there's a saying: it's not whether or not the recession will occur that it's when. Anyone who keeps track of markets will know t

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In the business world there’s a saying: it’s not whether or not the recession will occur that it’s when. Anyone who keeps track of markets will know that the economy moves through lows and highs.

Consider the impact could a downturn impact your business? In the event that you’ve enjoyed economic highs, are ready for the inevitable downturns?
Successful business owners know how to navigate these waves and work towards both their short – and long-term objectives. This requires solid financial principles, and often it is a capital injection to smooth out rough patches.

Here are a few suggestions and tricks to help you make sure you’re ready for whatever comes your way this year.

Prepare for Rising Interest Rates

If you’re in a downturn, the interest rates of the loans you have or on your lines credit (LOC) are likely to increase. A slight increase in rates could quickly cut off your earnings. If you’re surprised and have save money to keep your head above water. Your plans to grow your business in the future will almost definitely be delayed.

Securing new capital during a recession will have increased interest rates as well. A credit line could help fill up gap in income, however, higher rates of interest will mean more future payments that will affect the speed at which you recover when the recession is over. If the growth of your business slows or slows the market share of your business may never be able to recover.

Get Capital Now, While Rates Are Low

Contact your banker as quickly as you can if a long-term loan is part of your expansion plan. One of the ways to avoid an economic downturn is having funds while rates are low.

Lines of credit are similar to long-term loans. If you are anticipating the need to bridge periodic gaps in income, or are worried about periods of decreased revenues, get the credit today when rates are low. This will reduce monthly payments in the future and will aid in keeping your company on track in an economic downturn.

If you’re not sure if you should take out a long-term loans or LOC is the right option for you in the present, think about how you’ll use the funds. When you get the loan, you’ll take the entire lump sum in upfront and then repay it. A credit line allows you to get access to the money whenever you require it, repay it in a timely manner, and then repeat the process as needed.

The loan is ideal in the event that you know what you’ll need to take out. If your needs aren’t so well-defined, the line of credit can provide greater flexibility and could reduce your expenses over the long haul.

Consider Shifting Customer Behaviors

The recession doesn’t only affect your business; they impact your customers as well. Consumers are also facing their own financial difficulties which is why they might reduce spending or even stop doing business with you altogether.

The loss of income could limit your cash flow and could result in a surplus of un-sold inventory. In the worst case, it could impact you ability to pay the lights on and keep your employees paid. Maintaining your workforce is crucial as hiring in a downturn isn’t easy.

Even if your cash flow is sufficient to run your business there may be gaps that you have to fill. If you’re operating in a B2B industry and your customers are struggling with a limited flow of cash from their own. They might begin slowing down their payment plans (example Net30 might suddenly turn into Net60). This can, of course, make your issues worse.

Prepare For Changes in Vendor Behavior

Do you have suppliers you are confident in and purchase from exclusively? Even a slight recession could force them out of business and result in you not having products to offer. Not only do your customers reduced their spending, however, you’re not able to provide the items they’ve come to expect. They’ll look elsewhere.

Insufficient inventory will reduce customer satisfaction, particularly if you have empty shelves or aren’t carrying the most sought-after and profitable items. If your revenues are lower than you would like, it will affect the ability of your business to cover the cost of products such as services, credit, or even products and the local business relationships may be affected. It also causes a stumbling block in the future expansion plans.

Have a Plan for When to Spend More

Though it may seem strange spending more on marketing could actually benefit you. When you do this you’re not only attracting potential customers from the outside, but you’re also able to encourage existing customers to keep working with you. Special sales or creative campaigns can boost revenue.

Alongside marketing, if it seems that products or materials could be more difficult to obtain from your suppliers Consider expanding your product products. You’ll want to ensure that your products remain readily available to customers, as well as to perhaps bring in new customers. The introduction of new products, in conjunction with new marketing campaigns, could make sure that your sales funnel is effective.

Unexpected costs, such as repair work on equipment, could alter your financial position in difficult periods. It’s a good idea to review your warrantees and purchase maintenance contracts to ensure that you don’t have to endure a prolonged period of interruptions.

If you’re in need of money to purchase new equipment however it’s not on your list, think about shifting your schedule to benefit from the lower rates of interest. As long as they’re around.

There is a way to cut costs while hoping for the most effective. However, should a crucial piece of equipment fail that is accompanied by low profits and loan repayments that are higher It will be difficult to pay for the necessary repairs or maintenance.

 


Shave Expenses and Build a Cash Reserve

If your income isn’t as high It is sensible to keep your expenses under control. This is a good idea always Of course. It’s even more important in the lead towards, and even through an economic downturn. Examine what you’re spending money on each month and look for ways to reduce your expenses. If needed, you could increase prices on certain items or services to maintain the margins at the same level.

What you do not need to do during a slow cash flow crisis is to be forced to eliminate or dispose of un-sold inventory. In addition, tightening your inventory is an intelligent way to work with your suppliers. Meet with them, figure out new purchase and payment terms, and then stick to your program.

After you reduce your expenses in order to keep or boost profits, you can begin to build your cash reserve. Do you already have one? It’s time to increase it! If you are in need of covering the gap in your income immediately by using a small amount of your cash reserve can provide you with a cushion until you are able to secure credit.

Get Started Now

It’s never too late to talk to an expert financial advisor you trust and create a plan of action to keep ahead of any challenges circumstances may come your way. Even a slight recession can cause a huge impact for your financial health.

Get in touch with Starion Bank today to speak with one of our experienced and skilled business bankers who will assist your business to succeed this year and in the future.

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