In business, it always pays to be prepared. With the stock market constantly in flux, it can be difficult for business owners to ascertain which direction the market is heading next. This can complicate decision-making processes, especially in the event of a market downturn.
While there is no way to accurately predict the market, making precautionary plans in advance can help businesses effectively navigate storms. Below, 15 Forbes Business Council members each share one step business owners should take to prepare for a potential stock market downturn.
1. Remain Focused On Customers’ Needs
Never lose sight of your customers’ needs. When the stock market is in a downturn, your business isn’t the only one affected. By thinking creatively about how you can support your customers outside of your traditional business model, you’ll be a step ahead if you need to pivot to meet new or different needs. This will keep your business relevant and strengthen long-term loyalty. – Kristen M. Waterfield, The Malvern School
2. Take A Go-Getter Approach
A business should not have to depend upon the stock market if precautions are taken care in advance. Businesses must grow organically from different segments and be measured on a daily basis. A go-getter approach will be useful. – Ramesh Arora, SIGNATURE HOSPITALLITY GROUP
3. Diversify Your Revenue Streams
Diversification is a primary strategy for preparing for a stock market downturn, and the same principle applies to business owners. Avoid relying excessively on a single source of income, especially if it’s tied to the stock market or a specific sector. Spread your income across various areas to safeguard your cash flow in case of economic decline. – Shawn Short, S Oliver Short Financial Services
4. Explore Resilient And Emerging Markets
Diversify revenue streams by exploring resilient and emerging markets like decentralized finance or digital payment platforms. Diversification reduces reliance on traditional markets, which are more vulnerable during downturns. This approach ensures operational stability, cost efficiency through lower transaction fees and access to broader, more stable customer bases. – Soheila Yalpani, TerraScale
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5. Acquire Public And Private Clients
Business owners have to be prepared for anything. Having a balanced mix of public and private clients allows leaders to focus on their customers’ essential needs. This can help them weather potential storms. – Ibrahim Jackson, Ubiquitous Preferred Services Inc.
6. Increase Financial Resilience
To prepare for a stock market downturn, business owners should strengthen their financial resilience by building an emergency fund or increasing cash reserves. This ensures liquidity during economic uncertainty, allows operations to continue without costly external funding and positions the business to seize opportunities like acquiring struggling competitors. – Andreza Araujo, ACS Consultancy Services
7. Build A Robust Cash Reserve
Business owners should build a robust cash reserve to prepare for a stock market downturn. This ensures they can cover expenses during revenue shortfalls, avoid high-interest debt and seize opportunities while competitors struggle. A cash cushion provides stability and flexibility, helping businesses navigate economic challenges and emerge stronger. – Lere Baale, Business School Netherlands International
8. Make Strategic Investments
Double down on strategic investments instead of cutting costs. While most businesses panic and freeze spending, positioning yourself as the player investing in growth during a downturn allows you to capture market share and emerge stronger once conditions improve. Downturns are opportunities to dominate, not just survive. – Yves Remmler, Endeavor Elements, Inc.
9. Strengthen Your Cash Flow And Liquidity Position
Strengthening the cash flow and liquidity position involves cutting unnecessary expenses, diversifying revenue streams, improving your reserve of accessible cash and renegotiating with partners, suppliers, vendors and lenders. Cash is what matters in a downturn market, so a solid financial cushion allows businesses to navigate reduced consumer spending or tighter credit markets without compromising operations. – Lola Eniolorunda, VG Platform Inc.
10. Engage In Strategic Tax Planning
Strategic tax planning is essential for preparing for a stock market downturn. By focusing on tax-sensitive opportunities, you can create financial advantages. For instance, reallocating $100K and recovering $30K in tax savings effectively frees up 30% of that money for reinvestment. This offsets potential market losses, providing stability and maximizing your financial position during volatility. – Shawn L. Davenport, Genwealth 360 Inc.
11. Develop A Crisis Management Plan
Having a crisis management plan in place is crucial. This plan should outline clear steps for addressing potential downturns, including adjustments to operations, staffing and financial strategies. For example, enhance accounts receivable, delay non-essential purchases and negotiate better terms with suppliers to optimize business cash flow. Being prepared is key to minimizing financial strain. – Sabeer Nelliparamban, Tyler Petroleum Inc.
12. Examine Historical Data
Look at historical data to develop an understanding of how your industry, suppliers and target market react in a downturn. Use this to build a plan for when the next downturn arises. Consider the actions peers took in previous downturns to ensure success. This will help you take a strategic view and build resilience in your business. If you are correctly prepared, there will be opportunities. – Henry McIntosh, Twenty One Twelve Marketing
13. Prepare Mentally
I believe the key is for a leader to be mentally prepared for downturns. If they can remain confident and resilient during tough times, it means the company is well-prepared and has the necessary resources, including a financial safety cushion, to navigate unforeseen challenges. – Jekaterina Beljankova, WALLACE s.r.o
14. Develop Potential Scenarios
Engage in war gaming scenarios to plan responses to a stock market downturn. For example, if revenue dips, focus on cutting non-essential costs or if credit tightens, focus on secure financing now. This “if this, then that” approach ensures agility, minimizes surprises and helps maintain stability when the market shifts. – Jon Osterburg, Jitasa
15. Set Up A Contingency Fund
Establish a contingency fund to cover at least six months of expenses. This financial cushion ensures your business can weather downturns without major disruption. Consider investing the fund in low-risk options, like bonds, to generate modest returns while keeping the funds accessible. Preparation like this safeguards your operations and provides peace of mind during uncertain times. – Raquel Gomes, Stafi
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