Tips for Starting a Small Business in Uncertain Times
The news about small businesses during the height of the COVID-19 pandemic was quite dire. Thousands shut down for good as demand dried up and sales suffered. But despite the challenges, thousands of individuals also decided to take the leap with their own ventures.
If you're considering starting a business, congratulations. But because the startup life can be tough even in the best of times, difficult economic conditions call for a unique set of tips for starting a small business.
Laying the groundwork
Your passion sets the foundation for any entrepreneurial venture. Especially amid an economic slump, effectively channeling that drive can help you clarify the best path forward. To focus, consider the landscape.
- Look around your community: What's missing? What was successful but couldn't survive the slowdown? How are customers still meeting their needs?
- Check out similar companies: What elements of their business are thriving despite the conditions? What new market niches have emerged? How have they cut back? Are they now missing a segment of the market?
- Connect with people beyond family and friends: How have their buying habits changed amid the challenges? What do they refuse to give up? What can't they wait to do or buy again when the economy recovers?
Armed with this information, consider how your passion translates into in-demand goods or services. What will potential customers value today—and seek more of down the road?
Perhaps asking so many questions runs counter to your desire to hit the ground running. However, the more thinking and listening you do in advance of putting your business in motion, the better your odds of success.
Planning for growth
Once you've zeroed in on an opportunity, it's time for a business plan.
When times are good, it's fair to build in healthy growth assumptions. When times are tough, however, the traditional ways of doing business frequently get derailed.
Consider how, during the pandemic, retailers operating brick-and-mortar locations scrambled amid shutdowns and reopening rules while manufacturers contended with abrupt supply chain failures.
Planning for the worst won't keep the challenges from arising, but it will help you allow for potential solutions.
At first, keep the scope of your business plan manageable to ensure you can meet client expectations with high-quality offerings and service. That could translate into a limited number of sales points or a streamlined product line. Plus, handle as many duties as you can yourself to delay adding payroll expenses—although outsourcing accounting, distribution or specialized marketing efforts can still be cost-effective.
Once you establish early success, growth into other offerings or markets can follow, especially when the economy is on a roll again.
Meanwhile, don't put your business plan in motion and forget about it. Today's successful strategy may wilt under tomorrow's new realities, especially if the economy swings dramatically one way or another. By keeping attuned to what the market and your customers are saying—and adjusting as needed—you'll more likely endure the inevitable challenges.
Get smart about finances
Much of what to know about starting a small business doesn't require an accounting or finance degree. But you should understand your potential revenues and expenses and how they interact, particularly during an economic decline.
With a handle on your numbers, you can better assess your financing needs. Hopefully, you've calculated and built up some savings to take this leap as funds will likely be scarce over the first couple of years. Family and friends may help provide a bridge to other sources for funding, but tread carefully so you avoid asking too much of those close to you. Consider exploring pitch competitions and community resources that can help defray startup costs.
Because your customers are living through the same sluggish economy, be creative with them. Consider volume discounts or consignment arrangements, especially if you sell through retailers or distributors. Also, discussing cash discounts, extended due dates or an exchange of services with your vendors, which are also trying to endure the slowdown, could ease your expenses. Calculate your sales revenue break-even point to avoid missing your financial goals.
Starting a business during a tough economy and plotting a path to growth can be overwhelming. When you're feeling stuck, don't hesitate to reach out to others for insight, guidance, additional tips for starting a small business or a sympathetic ear.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.