Lesson 8: Planning for Lean Times
Chances are your business will face some financial rough patches at some point. Work can slow down or dry up for any number of reasons, but some of the most common include:
- An economic downturn
- A major client goes out of business or cancels your contract
- Customer preferences change
- New technology forces you to adapt your business model, but you need a few months to catch up
Planning ahead will help you get through those times. They may still be tough, but they won’t be enough to shut you down.
Tips for how to prepare
Here are some strategies to consider to help disaster-proof your business:
- Build a business emergency fund.
- Just as with your personal finances, you should have an emergency fund that can cover three to six months of expenses. That gives you the breathing room to adjust your strategies or market to new clients without jeopardizing your business’s future.
- Diversify your client base.
- You never want your income to depend on one or two clients. If they decide to end their contract or fall on hard times themselves, a huge portion of your livelihood could be wiped out. Network often to connect with new clients and market your services consistently so that you’re always bringing in fresh business.
- Invest in upskilling.
- By continually improving and growing your skill set, you increase the value you provide to current and prospective clients, allowing you to attract more business and raise your rates consistently.
- Keep an eye on the market.
- Pay attention to national and local economic trends. If there’s talk of a recession or a potential tightening of the market, review your finances to make sure you’re prepared for what’s ahead.
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Business credit cards
One way to hedge against lean times is to open a business credit card. While you don’t want to rely on it for all of your expenses, it can be a useful resource as long as you go into it with your eyes open.
| Pros | Cons |
| Flexibility when you’re having cash flow issues | High interest rates |
| Build your business’s credit history | Potentially high annual fees |
| Earn cashback rewards | Can be difficult to pay off if business doesn’t pick up quickly |
Your business’s creditworthiness depends on a number of factors, including how long you’ve been operating and your personal credit history. But opening a business card can help you establish a record of on-time payments.
Good to know
Sometimes your circumstances change quickly. The COVID-19 pandemic and subsequent stay-at-home orders happened so fast that businesses had very little time to figure out how they were going to pivot or bring their services online.
While coronavirus was unprecedented, it helps to think about how you would react to a similar disruption. Would you have enough savings to cover a few lean months? Could you afford digital conferencing services so that you could continue providing services to customers? It helps to think about contingency plans before you ever need them.
