Take Initiative to Protect Your Bottom Line
In a pandemic, business leaders usually prioritize the most urgent issues — such as keeping their employees and customers safe, and ensuring that their supply chains remain intact. Once they have their houses in order in these areas, however, the next step is usually to ensure that cash flow remains healthy in the short term.
Studying the history of the ways in which businesses confront downturns of different kinds reveals that the most successful ones choose to be aggressive with their near-term cash flow plans. These businesses tend to be generous with partners and clients, and take forceful steps to manage their revenue and expenses. While these behaviors may seem opposed to one another, they are both necessary in any effort to ensure that a business remains financially sound.
Here are five ways you can take action to improve your company’s cash flow:
1. Introduce New Revenue Models
Many businesses have super-customers — customers who buy frequently, and in generous quantities. Such businesses are able to try new revenue models that get super-customers to put up cash in advance to buy goods and services at a discount. Often, such plans have businesses promoting alternative sales strategies involving gift cards. Blaze Pizza and Starbucks have successful gift card plans that are essentially advance sales tools.
Subscription plans are a way to monetize super-customers, as well. Such customers tend to be highly invested in ensuring the survival of their favorite companies. Putting super-customers on subscription pricing models, in which they pay a regular subscription each month for access to products or services, can provide businesses with positive cash flow in the short-term during an economic downturn.
2. Increase Short-term Sales with High-risk Return Policies and Warranties
During the recession of 2008, Hyundai America offered attractive terms to new car buyers – a groundbreaking 10-year, 100,000-mile warranty program, and the Hyundai Assurance buyback program. The 10-year warranty plan reassured buyers that they were buying a sound product, and the buyback program helped them feel confident about making a purchase because they knew that if they lost their jobs and were left unable to make their car payments, Hyundai would take their cars off their hands. The car manufacturer saw its car sales grow by nearly 25 percent the following year.
Hyundai couldn’t be completely sure that the generous customer confidence warranty and buyback program wouldn’t result in huge losses. They accepted the risk, however. In a downturn, smaller companies could try less ambitious versions of such customer confidence measures to calm anxieties and boost sales.
3. Speed Up New Products
In a recession, when entertainment spending tends to drop, movie studios tend to launch movies as premium-priced, pay-per-view programs. Broadcast companies accelerate the launches of their most anticipated shows to gain new subscribers, and video game companies put out titles before they’ve ironed all the kinks out. They make it clear that these releases may not be completely market-ready, but position them as early, sneak-peek opportunities. The goal is to work up consumer appetite and is often the result.
Whatever industry you may be in, if you’re able to prioritize the launch of new products or services to at least a limited audience, it can help with cash flow in the short term.
4. Investigate New Avenues for Customer Acquisition
If you provide a service, offering free trials or samples can gain brand exposure among a wider customer base. For example, Zoom, the video conferencing company, gained a great deal of positive coverage when it offered its services for free to the education market. While the company didn’t make additional revenue in the short-term; they managed to open the product up to a new market, ensuring future conversions to its paid product.
Mergers and acquisitions are another way to speed up customer acquisition. While you may be concerned about your cash flow, you may be able to acquire other companies in exchange for equity, and use them both to enhance your brand, and to open your brand to a new customer segment. As an example, the New York Times acquired the popular podcasting app AudM, to promote narrated journalism in addition to its print journalism. They made a low-cost bet on an expected migration away from print news to news consumed as podcasts, to help secure their future.
5. Cut Back on Vanity Marketing
Some marketing costs tend to be uncertain in their ability to deliver a reasonable return on investment, but are hard to cut back on in good times for reasons of optics. Difficult economic circumstances can change the rules, however. During the recession of 2008, for example, the beverage company Anheuser-Busch, cut back on different sports sponsorships to help save cash. While sponsorships can matter in the long-term, short-term cutbacks do not typically affect company image or sales.
The Bottom Line
When a recession occurs, it can be tempting for businesses to simply hunker down and act defensively to protect their bottom lines. In truth, however, difficult times tend to offer creative companies an opportunity to proactively seek out better opportunities. Whether you plan to find those opportunities by cutting back, by spending more, or by going after new customers, it’s important to take initiative, rather than to simply do as little as possible.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days. Call us today for more information at 800.405.6035.