6 Tips to Prepare Now for a Downturn Later

Protect your business. Take advantage of your good fortune now to prepare for lean times using these six strategies.   

Your business is strong and you’re likely in a great financial position. However, prosperous times can’t last forever. Every business owner will experience slow periods and downturns. It’s just the nature of business and our economy. Either market changes, stock market instability, or worse, natural disasters or economic recessions will all affect your business and its prosperity. Mapping out the options for your business during unstable times can help you survive (and maybe even thrive).

Protecting your business starts with being prepared for changes that will affect your business negatively. At Verity Commercial, we help business owners position their commercial real estate as a strategic advantage that can help prepare and secure them financially for an unknown future.

We’re also business owners and have learned there are six valuable things you can do right now when your business is strong that will protect your company in a downturn.

1. Build relationships and past history with a bank while you’re doing well.

Start building a relationship with a bank now for a better chance at obtaining a term loan or credit line approval in hard times. One way to build a relationship is to take out a loan now when you don’t need it. Then, pay it back on time. This will demonstrate a stable payment history and will improve your chances of getting money from the bank when you need it most.

2. Take out a credit line so it’s available when you need it. 

If you apply for a credit line when business is good, you’ll be in the best position to be approved. Credit lines give the greatest flexibility to business owners because they allow you to continuously draw funds up to a certain amount as needed and repay it. However, banks are less likely to give you a credit line when times are tough. Be aware, credit line interest rates are higher than other loans but you do have some options. For example, if you have commercial real estate or other assets to back up a credit line, then your rate may be lower although you may not want to risk losing your real estate if you default and can’t pay back the loan. Whatever you choose, applying for a credit line before a crisis is the best time to ask your bank for it.

3. Refinance and/or repay debt 

The ideal time to repay or refinance any high-interest debts such as term loans and credit is when cash flow is plenty and steady. Interest rates are potentially lower than when you first took out your business loan or credit. It’s also possible you may be more established with a better credit score and can obtain a better rate. Reducing the amount of interest you pay on loans and credit could save your business money by giving a little more cushion when business cash flow is leaner.

4. Diversify your client base (if possible) 

Expanding your client base, services, or products is good idea in any market. If you’re relying on one or two clients to get you through hard times, that will prove to be detrimental to your business. Start by finding different clients through your center of influences or at networking events. Increase your credibility through referrals, recommendations, and word-of-mouth. If it’s possible, find ways to cross-sell services and/or products to different clients. Spreading your client base will ensure stable income in a downturn.

5. Plan for worst-case scenarios 

No one wants to think about the worst possible crises. However, as a business owner it is critical that you consider all future scenarios and think about what you do in each case. What would you do if you lost your biggest client or manufacturer? What would you do if there was a significant decrease in sales? Or worse, what would you do if a natural disaster destroyed a facility or if another recession hit like the one from 2008? If anything happens (and we hope it won’t), you won’t be taken by surprise. Instead, you’ll be ready with a plan.

6. Consider commercial real estate as other source of income 

Investing in commercial real estate can help supplement income when times are hard. If you’re leasing and experience a slow period, you could consider subleasing extra space to another tenant to bring in additional income. However, check your lease agreement first. The landlord could restrict your subleasing options. Some other options are investing in a single asset, becoming a sole investor, or co-investing with partners. However, these options can be long-term investments and may not be ideal if you need immediate cash. There are many factors to consider with real estate investment such as short- and long-term goals, growth and return objectives, risk comfort level, and financial capacity. You’ll most likely need to consult a commercial real estate expert to help guide you.  

Think strategically about your business opportunities now and make improvements while you can take risks. Follow these strategies and you’ll be better prepared to respond to slow period or, even worse, an economic financial crisis. Doing these things now will secure your business for the future and help you prosper during an unexpected crisis.  

If you’re interested in learning more about how investing in commercial real estate can help you during a downturn, contact Verity Commercial today.