The highs are fantastic, but how can you budget for when business is slow?

10 January 2019 Category :

Many businesses have low seasons or other downturns, but there’s usually no need to panic. You just need to budget for them beforehand, and have contingency plans in place for when they hit.

Smart budgeting strategies include being flexible with your pricing, saving extra money during high seasons and not getting ‘flash’ with your profits. You can also focus on your core strengths – and best customers – when the downturn hits, and only spend on essential outgoings where possible.

So let’s look at these approaches in more detail.

Be flexible with your pricing and contracts

If possible, give preferential rates to companies that sign up for 12-month contracts – so you know you’ve a certain amount of money coming in all year round. You can also give reduced rates during months that are normally your low season (such as July and August in the UAE) to encourage more client work over that period.

Why this will help your business survive

Adapting your pricing or contracts to attract more business during low periods will help you stave off cashflow issues. That’s very important because 82% of small business failures are due to cash flow problems, according to a study by US Bank.

Put extra savings away in the high season

Experienced entrepreneurs know that all businesses – like economies – have cycles. So they build up cash reserves when business is booming. They make hay while the sun shines, and put money aside for a rainy day. You can do the same.

Why this will help your business survive

The key to weathering a downturn is having enough cash to get you through it. So if your cashflow is poor, you can supplement it with the money you saved when the going was good. It’s just a matter of getting your business through the natural cycle to the next upturn.

As well as that, of course, building up savings is an excellent habit to develop. In a recent survey, for example, 88% of rich people said that saving money was incredibly important to their success. The more you save, the more money you can make – and the greater buffer you have for when business is slow.

In a recent survey, for example, 88% of rich people said that saving money was incredibly important to their success.

Stick to your budgets during high seasons and don’t get ‘flash’ with your profits

Entrepreneurs are naturally optimistic, and when your business is making lots of money it’s easy to think that it always will. But that’s not necessarily the case, especially if you have a low season like here in the UAE.

So develop your business budgets to reflect the high and low seasons, and then stick to them – even during the boom times. And don’t get flash with your excess profits, but rather save the cash for when you need it.

Why this will help your business survive

It means you won’t fritter away your money, but will have reserves to draw on to get you though lean times. You would be very upset if your business went through boom and bust, after all. As one startup entrepreneur put it in Inc. magazine, ‘Cash is your gasoline. You don’t want to find yourself on the open road with an empty tank.’

Only spend money on the essentials

Even if you’re not ‘flash’ when your business is going well, you may be tempted to buy extra things that you want. But when business starts to slow, you really should only spend on the essential things that you need.

So work out what your essential outgoings are – the bare necessities that your business needs to operate with. Comb through your costs and identify the ‘must haves’ and the ‘nice to haves’. And then stick to the indispensables and cut out everything else.

Why this will help your business survive

This approach is another way to conserve your cash and help your cash flow, until sales pick up again. It also helps you to really understand the cost base of your business, and cut out expenditure that you don’t need. Which will make you leaner, more competitive and even more successful than you are now.

Focus on your core money-making strengths

What are the strengths that have made your business so successful to date? What skills and services do your customers value, and why do they buy from you? (If you’re not sure – ask them.) And are you doing things that don’t add value?

By answering those questions, you can focus in on the key activities and services that make you money, and stop doing things that no longer add value. It’s good practice to review your business on a regular basis – but especially when entering a slow period.

Why this will help your business survive

It will help you to cut costs and focus your resources into what really earns your business money. It’s a great opportunity to discontinue things that might have worked in the past, but are now dispensable.

Focus on your high-margin customers

Some customers, as you know, are more profitable than others – and you need to retain and develop them during a downturn. So identify your best customers in terms of profit and volume of business they give you.

Pareto’s principle – the 80/20 rule – applies here. 80% of your business probably comes from 20% of your customers. So when the going gets tough, focus in on your top customers and de-prioritise lower value ones. If you have to cut costs, be prepared to shift resources to keep your best customers.

80% of your business probably comes from 20% of your customers.

Why this will help your business survive

This approach will help you to generate the most revenue from your available resources. It will also help you identify the type of customer that’s good for your business, so you can get more of them.

Summary

All businesses go through downturns, so it’s essential to plan for them. Clever strategies include saving extra money during the high periods, being careful with your spending and flexible with your pricing. You can also focus in on your core strengths and best customers during a slow period, to help get you through.

Having enough cash is critical to your survival and ongoing success.

Setting up your own business has never been easier. Virtuzone takes care of it all so you can focus on what matters – building your business. For more information about company formation in the UAE mainland or free zones, please call us on +971 4 457 8200, send an email to info@vz.ae, or click here.

About the author: Paul Bryson, Director of Domestic Structuring at Virtuzone.

About the author: Paul Bryson, Director of Domestic Structuring at Virtuzone.

Paul Bryson is the Director of Domestic Structuring at Virtuzone, based in Dubai, UAE. He is also a member of the Board of Directors for the British Business Group, Dubai and Northern Emirates. A knowledgeable and active member of the business community in the UAE, Paul advises large multi-nationals and small startup businesses on how to best establish commercial presence in Dubai and across the rest of the UAE and Gulf region. Before embarking on his career in the Emirates, Paul graduated from the University of the West of Scotland with a Diploma in International Business.