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Four things to do if your company is feeling an economic pinch

By Renée Sylvestre-Williams

Published March 1, 2024 • 5 Min Read

There are ways for business owners to weather economic bumps in the road.

Today’s business landscape is tumultuous with fears of recession, inflation and changing consumer behaviour near constant.

These pressures are often most strongly felt by small and medium business owners, with more than 55 per cent saying they’re challenged by cost increases due to inflationary pressures or high interest rates. Other challenges include supply line shortages and hiring.

Consumers are also cooling their spending according to a recent RBC Consumer Spending Tracking report, which found that Canadians are choosing to stay home and are reducing their spending on discretionary services and products.      

It all adds up to a situation where business owners aren’t feeling as confident as they were pre-pandemic, Michelle Herscu, CPA and owner of MLHC Professional Corporation, says.

“Some of the smaller companies that work with us have decided to shut down because [of how hard it is to manage the current economic climate],” she says, noting common concerns she’s heard include the higher cost of borrowing money, inflation and housing unaffordability. “[Some people have simply] decided… to go back to work full-time.”    

The good news is, though, it’s not all doom and gloom. Because Canada’s economy likely grew in December, it doesn’t look like the country is in a technical recession, but economists suggest it could be in for a “soft landing” with rate cuts unlikely before June.

Herscu adds there are also ways for business owners to weather economic bumps in the road. Her biggest advice? Analyze, adapt and innovate. Here are four ways organizations can do that.

Do a SWOT analysis

Herscu recommends businesses perform this basic analysis to identify their strengths, weaknesses, opportunities and threats as a way to figure out how to stay relevant within their industry during a downturn. Companies can use the information they find to develop strategic goals to expand or reduce production as appropriate.

Larger companies may find it’s the right time to acquire smaller companies at a discounted rate, she notes, while others may be able to capitalize on increased funding or government grants designed to help companies stay afloat.

What one company does will vary from another; what’s key is to constantly understand where your organization can and should grow based on its specific industry. Knowing your financials is also important.

Get close to your numbers

While business owners should be familiar with their company’s numbers, this is a good time to get extra acquainted with them, says Jami Monte, a CPA and founder of Chillbooks.

She recommends people look at their profit and loss margins monthly. “That keeps you close to [business] activities and will also help you catch any issues in the financial reporting itself.”

Monte also recommends looking at your balance sheet every quarter. Balance sheets show a company’s ability to pay its immediate and near-term operating needs and meet its debt obligations.

“[This will both help you] figure out if something negative is happening [and help you make informed strategic decisions for the future],” she says. 

Manage your cash flow

Cash and cash flow management becomes more important during uncertain economic times.

“If you don’t have cash your business [could] fail,” says Monte.

The data backs that up. A U.S. Bank study found that 82 per cent of companies fail because of poor cash management. A lack of cash could lead to a company delaying payment to vendors and employees. It could also quash the ability to invest in research, development and growth opportunities.

 “You want to make sure that your business has cash reserves. Most businesses don’t really have enough,” adds Herscu. In this case, looking into a line of credit or having access to a short-term loan may be appropriate.

Monte says owners should be looking at their cash flow forecast on a regular basis – that means weekly or at least monthly.

Get marketing

“[During market slumps or recessions], it’s [actually] a very good time to make investments in marketing and advertising,” even though that sounds counterintuitive, says Herscu. (Many job cuts hit marketing roles first.)

This is particularly true if a whole industry feels the impacts of an economic downtown; your company could be the one to stand out against competition.

Consumers, she adds, when they’re feeling confident and ready to spend again, will remember your company versus another.

In the end…

Monte says that when it comes to mitigating the effects of an economic downturn, adaptability and strategic planning are key. This goes back to doing a SWOT analysis and understanding your business.

She recommends that leaders look at ways to help make their employees’ lives easier and more efficient. This can include automating project management so they can spend more time on clients or focusing on expanding into new, profitable markets.

Finally, Monte says, it’s critical for leaders to think about ways their organization could fail.

“I know it’s kind of a scary thing, but we always need to innovate. We always need to be ready to change with a recession or with a global pandemic. If you want to be successful in the long run, you have to be open to looking at your [business’s] blind spots.”

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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