Recently, we officially set the record for the longest bull market in history. While this is a great feat currently, it means that eventually the market is bound to take a dramatic downturn. That said, it is nearly impossible to tell if that market drop will be tomorrow or the next few years. While the nature of markets is relatively easy to grasp, when and how they will drop isn’t. These drops could be momentary slumps or all-out crashes like the Financial crisis of 2007-2008. For this reason, if you’re a small business owner, it is in your best interest to have all of your business’s financial ducks in a row and adequately prepare for the inevitable.
Keep an Eye on Cash Flow
One of the most important things you can do for your small business is to develop a knack for smart money management. Even if a market downturn wasn’t on the horizon, it is always wise to have a thorough understanding of your finances. Do you have a budget? Do you know exactly how much money is coming in or going out each month? Way too often, business owners get caught up in the daily operations of a business and forget to focus on these important aspects.
If you are looking to get on track, there are many easy to use tools out there (Like Quickbooks or The Mint Mobile App) which can help you to better manage your money. Furthermore, always keep a close eye on your expenses. Overhead costs like utilities and insurance rates can all affect your cash flow, and reducing these can mean for a greater financial safety net when that downturn finally hits.
Expand Your Business
The best way to survive an economic downturn is to build a solid customer base that you can rely on even when the market isn’t at it’s best. To prepare, it helps to expand your network and market to other potential customers. There are many methods to go about doing this, from marketing funnels to networking events to email marketing campaigns. In addition to a quiring new customers, you should focus on the customers you already have by building more intimate relationships with them. By making your existing customer base feel more like an ally and less like a dollar sign, you can ensure the kind of support you’ll need during a market downturn.
Have Solid Asset Allocation
When there is a bear market, having a variety of different types of assets is always ideal. Different assets reaction differently to these changes. Therefore, having a good mix can reduce any large impacts you may face when the market turns. Having all of your money in stocks can often mean large (and frightening) results. However, if you split those resources between stocks, bonds, real estate or other investments, this is generally a much safer avenue to take. Did you know: very often, when the stock market goes down, the bond market goes up?
Looking to find the right balance for your money? If you want to properly diversify, look at a variety of factors about your investments including: industry, company size and location. Furthermore, always consider your personal factors as well like your age and risk tolerance.
Predicting when and how the next market downturn will occur is next to impossible. However, through careful planning, and knowledgeable insight of the market, you can survive well past the crash. Plenty of small businesses can thrive during economic hardship, and by taking the right steps, your business can as well.
Asset allocation is a method of diversification that positions assets among major investment categories. This tool may be used in an effort to manage risk and enhance returns, but it does not guarantee a profit or protection against loss in a declining market.