4 Ways Small Business Owners Can Prepare to Weather All Phases of the Business Cycle

Here are four things small business owners can do to set themselves up for success in an unfavorable economic environment.

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By Libby Morris You can read the entire article HERE on Entrepeneur.com’s website

September 21, 2022

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Facing higher costs, ongoing supply chain issues and deteriorating market conditions, small business owners are navigating an economic environment that is once again threatening their ability to survive. Today’s landscape may be historic in its own right, but if there’s one thing we can rely on, it’s the inevitability of the business cycle.

Preparing for an emergency — or just the next unavoidable downturn — can be critical to future success. While the pandemic demonstrated that emergency savings are essential to surviving the ebb and flow of business, a bigger financial cushion certainly couldn’t hurt. Below are four ways to create a buffer that can provide peace of mind in the short term and encourage business success and survival in the long term.

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1. Build up your emergency fund with these immediately actionable steps

• Start small: No amount saved is too little — start by setting an attainable savings goal, and periodically adjust or increase it until you can build a more strategic long-term plan.
• Keep operating and savings accounts separate: Out of sight, out of mind — using a separate savings account with an annual percentage yield above the national average of 0.10% (FDIC) can help ensure that you won’t use the money until you need to, while also allowing you to earn interest on your dollars.
• Automate your savings: Set up an automatic recurring transfer to a separate, high-yield savings account. You can also automate a particular revenue stream to directly go into the account. For example, you can program your POS system to set aside 5% of daily cash revenue.

2. Adapt your saving habits and business goals as market conditions evolve, while still adhering to an overall financial plan

• Revisit shorter-term goals and savings strategies: Revisiting shorter-term goals and savings strategies can help you stay on track for reaching longer-term business objectives and success. When the economy and business are good, increase the amount you put toward savings in anticipation of a rainy day. In more turbulent conditions, look at what you’re currently saving each month versus what you can afford to save each month.
• Evaluate the cost of goods and services: Do this by looking into alternative merchant service providers to get competitive pricing. Obtain formal quotes from a few of them before selecting the most cost-efficient option. Competitors will also often offer incentives for you to switch merchants (such as waiving certain fees). For example, consider reviewing your point-of-sale terminal provider against other offers once a year.
• Evaluate operating expenses: Start by reassessing the rates you’re paying for payroll or benefits provider services. You might also consider negotiating your lease agreement with your landlord. For example, signing on for a longer-term lease may encourage more favorable rates. Even if it isn’t time to renew, it never hurts to ask what your service providers are willing to do to keep your business.

Related: 7 Creative Ways for Your Small Business to Save Money

3. Determine how much money is needed in your emergency fund — and what would constitute an “emergency”

• First, it is important to determine the…

Read on…Article continues HERE on Entrepeneur.com’s website