3 Strategic Areas Every Growing Business Should Focus on When Uncertain Economic Times Are Upon Us
From building to scaling to maintaining growth, one thing is certain: the entrepreneurial journey is never short of bumps in the road.
You've heard the news: the economic climate is expected to shift over the next twelve months. While it may feel as if you are at the mercy of economic forces far beyond your grasp, you can control your destiny by focusing on key areas of your business.
Optimize your business to stay profitable and competitive by focusing on three key areas:
1. People
Recent layoffs indicate an upcoming time of rapid change. To survive and thrive, you need the right people on your team who can adapt quickly. The labor shortage is one of the biggest challenges you'll face.
Analyzing and evaluating teams should be a top priority. Build clear criteria for each role and assess through the lens of your company's values and culture: Are they a good fit? Will they be able to handle the challenges the future might bring? Are they resilient? Do they contribute to growth?
Similarly, recognizing high-performers and taking steps to retain them is crucial. I've always felt that the "people" element of companies has more to do with recognizing than reorganizing. In complex economic times, a culture of appreciation and recognition becomes a game-changer for stability, morale, and unity. Non-monetary incentives and strategies can be incredibly impactful for engaging, motivating, and ensuring your team feels recognized for their work. The more they feel recognized, the more they will rally together when the tide gets choppy.
It may prove difficult to hire new strategic talent this year. Instead, focus your efforts (and budget) on retention and development. In "strong" economic times, you may be able to afford ready-made talent that can hit the ground running. Instead, use the current opportunity to develop talent from within. Ask yourself: "Who on the team has the willingness and capacity to grow and take on more responsibility?" There are likely several people eagerly awaiting the chance. Help them embrace it!
2. Cash Flow
Without a reliable stream of income, no business can survive long-term. When "lean times" are forecast, planning for recession-proof cash flow becomes essential.
At least two months of operating expenses is a must-have for any growing business. That way, even if the entire market crashes and you lose customers, you'll have a runway to rebuild.
Start with an audit: assess accounts receivable (AR) and accounts payable (AP). Find processes that speed up customer payments or slow down payments to suppliers. Utilize tools like invoicing automation, collections software, and payment processors to ensure your payments system is solid. A good AR/AP system helps keep cash flow afloat while also improving relationships with creditors or investors.
Assess payables in terms of negotiation. Can you negotiate discounts or better terms with suppliers to reduce costs? Can you incentivize customers to pay sooner? Cash-accelerating strategies such as discounts for customers who pay early can increase cash flow.
In unclear economic times, more budgeting is always better. Build a budget for both short-term and long-term costs, and ensure you have a solid cushion to minimize the impact of unexpected costs. Project forward with different models and potential circumstances, and compare them to the accurate picture of your financial health.
This will make it easier to plan, and if a small bump in the road occurs, you'll know its context in the bigger picture. Often, such bumps are scarier in imagination than reality. Don't let it affect your mental health; instead, be prepared.
3. Go Lean
The most dangerous phrase I hear from entrepreneurs is "because we've always done it that way."
Processes should be both fixed and flexible, never written in stone. It's precisely when the future is unclear that flexibility comes into play--something we all experienced throughout the pandemic ("pivot" was the 2020 Word of the Year for a reason).
Be flexible with processes, and think in terms of "going lean." Going lean means improving efficiency, eliminating waste, and streamlining processes to increase productivity. Take a hard look at every process, starting with each profit center (example: sales) or cost center (example: accounting or legal) and identify areas of improvement or potential optimization for each.
The core definition of lean is "removing and eliminating activities that don't add value to the customer." If a process doesn't directly affect the customer experience in a positive way or contribute to the bottom line, consider discarding it entirely.
Strategies that streamline systems and processes lead to a more efficient workflow. Automation works wonders for reducing manual tasks and freeing up the time needed for critical projects. Adopting a "lean" mindset will keep your business agile in tough times, reposition you for good times, and empower your teams to think like operators.
None of us have a clear view of what may be coming around the corner. To make the most out of 2023, go on the offense in the areas of people, cash flow, and systems.
This article was written by Entrepreneurs' Organization from Inc. and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.
