By Forbes Finance Council, Forbes featuring By JC Abusaid, CEO/President

The state of the economy is on everyone’s mind, and doom and gloom projections are rampant. We know that economic downturns lead to decreased consumer spending and an overall decline in market demand — the precise opposite of what business leaders want.

Luckily, there are steps companies can take to turn an economic downturn into a business opportunity. Those that are able to adapt to a changing economic landscape can emerge stronger than ever. In this article, we’ll consult the CFOs and other finance executives of Forbes Finance Council to learn the top five steps they recommend taking in response to challenging financial times.

Assess Your Budget — Audit Expenses and Cut Costs

When the economy takes a turn for the worse, our finance experts recommend that businesses prioritize spending on their most profitable activities and to cut costs in order to weather the storm.

“It’s important to audit all the activities in your business and to look for the most productive activities,” says Kale Goodman, co-founder, Easier Accounting. “Use metrics and key performance indicators (KPIs) to take a look at what your business is doing right and what it can do better. Audit your marketing, sales efforts and expenditures. Find the most profitable activities and double down on those to maximize profit.”1

Omar Choucair, CFO, Trintech, says it’s important to prioritize working capital, rather than looking solely at revenue and cost estimates. Regular and rigorous analysis of accounts receivable and accounts payable, coupled with flexible forecasting models that take into account various potential economic scenarios, will be critical for financial success this year,”2 he says.

Along with finding the most profitable parts of your business and doubling down there, finding ways to reduce spending is always wise. “There are almost always places where costs can be cut, says Camilo Concha, CEO and founder, LendingUSA. “Maybe you consider switching to a cheaper supplier, or decide to buy in bulk since things are typically cheaper when bought in bulk. … Chances are that your company is paying for something that’s unnecessary. Find it and cut it out.”3

Aneal Vallurupalli, CFO, Airbase, reminds leaders that all these measures should be based on measurable data. “The data can show how to avoid the rocks below the surface and how to best navigate sharp turns—to see and take advantage of opportunities. Becoming data-driven does not ensure survival, but it does help to increase the odds,”4 he says.

Diversify

An economic downturn might signal a great time to diversify your business offerings. For example, if you run a restaurant that has experienced a decline in sales, you could consider branching out into catering or takeout services to generate additional revenue streams. By diversifying, you can spread out your risk and become less reliant on a single product or service.

“Experiment with different price points and models; focus on other target markets that are related to your business,” recommends Joseph Lustberg, CEO and managing partner, Upwise Capital. “Remaining fluid and shifting your focus while still maintaining the integrity of your business is vital to success. During COVID-19, many small businesses changed their business models to reflect the current crisis, and it’s because of that out-of-the-box thinking that they are still around today.”5

Invest in marketing

During slower economic times, many businesses cut back on their marketing budgets in an attempt to save money. However, this can actually be a great time to invest in marketing, as there is likely to be less competition for advertising space and customers may be more receptive to promotional offers.

Matthew Meehan, CEO, Shield Advisory Group, says, “Advertising budgets are typically the first thing that gets slashed when businesses face financial hardships. It’s hard to pour time, energy and money into something that doesn’t always have an immediate ROI.” But finance executives and other business leaders should avoid this knee-jerk reaction. “Even in an economic slump,” Meehan says, “you need to keep your competitive edge in the market. Consumers are spending less, and when they do make a purchase, they’re far more discerning and selective. If you’re not getting your name out there, you have less hope that your business is the one they’ll choose to support.”6

By taking advantage of lower advertising costs and leveraging social media platforms to reach customers directly, businesses can potentially reach a larger audience and generate more sales.

Innovate

Weaker market cycles require businesses to be more creative and innovative in order to survive. By embracing new technologies, developing new products, or finding new ways to streamline operations, businesses can potentially reduce costs and improve efficiency.

Rayne Steinberg, CEO, Arca, points out that “previous downturns have served as important inflection points, with bear markets often spurring the rebirth of entrepreneurial innovation. At these critical junctures, scarcity of resources and tougher business conditions force companies to get creative and renew their focus on research and analysis, developing robust processes and fortifying risk management frameworks.”7

“Focus on innovation for sustained, product-led growth,” says Simon Edwards, CFO, ServiceMax. “Your research and development teams must ensure your innovations are staying ahead of customer demand, and that customers are receiving clear and measurable near-term value from your product. That will act as a foundation for sustained organic growth.”8

By taking a proactive approach to innovation, businesses can gain a competitive advantage over peers, even during slow financial periods.

Invest in your employees

During difficult economic times, many businesses find themselves laying off employees in order to cut costs. However, this can actually be a great time to invest in your existing employees by offering training and development. By providing your employees with the skills and knowledge they need to succeed, you can not only improve their job performance, but also increase employee morale and loyalty.

“Employees are the lifeblood of your business,” says Kale Goodman, XXX. “Most employees will be thankful for a job during a time of instability, but they also might be stressed about their financial position or the general state of the economy. … Utilize this time to ask your employees how they can be better empowered to do their jobs. Focus on giving them all available tools necessary to thrive in their position. If you have the cash on hand and a proper financial runway, a little extra expenditure here can go a long way during a recession and after.”9

John Abusaid, CEO and president, Halbert Hargrove, agrees. “For us, anything that makes our firm better gets more protection when the budgetary knives are out. One example has been not cutting our education funding. Supporting our associates in their own growth is a core value as it feeds our firm over the long run.” He points out that employees who feel supported are more likely to lend their support to the company in return. “Everyone wants to make their company better. When times are tough, pitching in to improve processes and create efficiencies can give your team purpose and foster camaraderie.”10

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