078: Is Your Business Recession Ready?

The unpredictable economy is changing day by day. Don't panic. Let's talk about how to get your business recession ready for whatever comes our way. Come listen.

Welcome to the Launch Your Box podcast with weekly tips, tricks, and strategies to start, launch, and grow your subscription box. Now here's your host, Sarah Williams.

Welcome back to the Launch Your Box podcast. I've got a solo episode for you today. I have spent the last few months doing the Ask Sarah series and interviewing my amazing members, but I know you love the solo episodes too. So I'm back with a hot topic today. I was on a Zoom call with my Scale Your Box course students a few weeks ago. And the question came up about How do we recession-proof our businesses, Sarah? And I instantly just feel like an icky feeling of recession-proof. I just don't like that term at all because I don't think there's anything that we can do that would foolproof, that would recession-proof, that there's nothing we can do to make sure nothing bad happens. Like, it's just, it's unrealistic. And so I really want to talk about how we can make are businesses ready for a recession? Are we recession ready? Not that we're recession proof. I don't think anybody anywhere is recession proof, but are we recession ready? I asked them on that call, how many of them had businesses before 2020, because I just wanted to encourage them that, hey, if we made it through the pandemic, we can make it through a recession. And I was surprised. I was actually shocked at how many of them had started their businesses after March of 2020. And so I felt like if they had gone through the pandemic, then they wouldn't panic. Like we survived that and surely we could survive a recession. But the look on their faces told me that they were panicked and they were unsure. And they were looking at me to help them figure out what all of this means. The first piece of advice that I can give you is that it's unpredictable. We don't know what's going to happen. And that's what makes it stressful. It makes it stressful as just a regular person, you know, as a consumer, it's stressful not knowing if you can get things that you need, what the costs are going to be, but it's like double stressful if you're a business owner and you're trying to navigate not only as a consumer in this world with this craziness going on, but as a business owner. And so today I put together 7 areas to focus on. So that you're recession ready. And so if you're the kind that likes to listen to podcasts and take a few notes, I'm going to tell you to grab your notebook because I have some thoughts for you. I want you to look at 7 different areas of your business to make sure that you're recession ready, or just if you're on a walk, if you're in the car listening, just listen, come back, grab the show notes when you get done. But let's talk about it. The first thing, and this is probably the most important, and that's why I put it number 1, You gotta get control of your inventory. How much inventory do you have right now sitting on your shelves? We've gotta make smart buying decisions. And in the pandemic, we were almost making like crazy buying decisions. We were just buying anything we could get our hands on because products were not readily available. There was a huge disruption in our supply chain. And so we were panic buying a lot. We were just buying whatever we could get because we weren't sure if we could get it. But it's changed, and the buying habits of our customers and the consumers have changed, leaving retailers with too much inventory. It was the opposite of what happened 18 months ago. 18 months ago, shelves were bare, we couldn't get things, and now the shelves are full, and they're overly full because buying habits of consumers right now have changed. People have tightened up their wallets. They're paying more money for gas than they ever have before. The market's unpredictable. And so people are buying less. And if you felt that in your business, I want you to know that everyone is feeling that right now. The buying habits have changed. I'm feeling it in my own business, but it doesn't mean I need to panic. Okay. So let's talk about inventory. I had to make some decisions over the last several months. To change the way I was buying inventory. I had been buying deep, and what that means is I've been buying fewer products and more quantities of those products, and I've had to shift that to buy wide. I needed to go wider with my selection. That means fewer quantities, more selection, different items. So the shift came from buying deep to buying wide, and this is for everyday purchases. This is not specifically for my subscription box, but I needed more options because I wasn't able to advertise like I used to. I could run an ad, I had plenty of stock of something, people were buying from the ad, and I didn't have to worry about shutting the ads down and selling out too quickly. But now that deep stock that I was buying is sitting on my shelves, and so I've got to do something about it. I've got to be careful with my subscription box buying. That I'm not overbuying, that I'm not predicting a bunch of growth that's not going to be there, that I'm being smart with my buying, that maybe I'm pulling back the growth a little bit so I'm not stuck with a bunch of inventory. I always buy excess with my subscription box because we personalize things. Um, there are some issues sometimes with shipping, and so I always have extra, and I have never really had issues with that. We always sell the extra, but I need to trim the excess right now. I don't want to be filling my shelves with product that's not selling right now because that's going to hurt me in a lot of different ways. So I want you to think about how much old inventory that you have sitting on your shelves right now, and we've got to liquidate it, and we've got to come up with a plan to liquidate it. And I want to give you some ideas so you can start thinking about it. If you've got product that's been sitting there for 6 months or longer, We need a plan to liquidate it. Okay, we could do a warehouse sale, we could do some giveaways, like do some bundles and sell some giveaways and put a sales funnel on the back of that giveaway to sell some of the product. We could do some BOGOs, buy one get one, buy one get two, buy two get one, something like that. We could have an end of summer sale. We're in the middle of summer right now. We could plan an end of summer sale and really liquidate some stuff. Something that's been working well for me is taking some of our excess inventory and creating bundles. So putting 2 or 3 pieces together, creating a swim bundle, creating a summer fun bundle, creating a self-care bundle. These would be different price points from our subscription, but we're bundling products together. We're not giving them a fun fancy box, we're just bundling the products together for a great deal. You could do a deal of the week. So you could feature like one product or a couple products every week as a deal of the week, mark something down, start to liquidate it. We've been experimenting with some of these live shopping events and it's been pretty fun. I need to do a whole podcast episode on that, but just offering something fun and exciting if people shop with you while you're live. And, um, So you've got to get creative, but we've got to liquidate our inventory. We cannot have old inventory just sitting on the shelf month after month after month, because what's going to happen is it's going to consume your cash flow. And that's what we're talking about for number 2. So number 1, get control of your inventory. Number 2, we've got to understand our cash flow. If you started your business in the pandemic, especially if it was online business, you probably had rapid growth. E-commerce was just having all the fun in 2020 for businesses. And we grew rapidly and we didn't necessarily look at all the data because we were just growing, we were making money, we weren't concerned about it. And so now we've gotta really analyze our cash flow to make sure that we're set up long-term. What I want for you and what I want for everyone listening is that our businesses are long-term sustainable businesses. It's not a fly-by-night. It's not like we hit the market first, we hit the ground running, now our run is over. We are building long-term sustainable businesses with our subscription boxes. There's some things I want you to understand with that. Decreasing your inventory, like we just talked about, will increase your cash flow. But you have to have product to sell. Okay. So you've got to have inventory to make sales. So it's like this double-edged sword. So I want you to really understand the rate of your revenue versus the rate of your expenses. And where we get into this cash flow issue is when our rate of expenses is higher than our rate of revenue. And then we feel like, okay, well, I'm making all this money, but where is it going? We need to have a profit and loss statement every single month. So if you do not have a profit and loss statement, you've got to have that every single month so that you understand what is coming in and what is going out. If you don't know that data, you don't know what to fix. So if you're using QuickBooks or you have a bookkeeper, you should very easily be able to generate a profit and loss statement for your business. Every single month. It's important to know that. And I know that a lot of you that listen to my podcast are creatives, and in our brain, we just want to make the things and sell the things, and we don't want to get wrapped up in the analytics and the data, but it's not smart. It's not smart business to not know what your expenses are versus your revenue and where your profit margin is at the end of the month. There are a lot of things you could look at when you see your profit and loss statement the very first time. You're like, wow, I didn't realize. And you can make changes and you can fix things and you can streamline your expenses and you can increase your cash flow. Because if you're feeling that strain at the end of each month, and you're not looking at a P&L statement every month, I'm going to challenge you to do that. The other thing that I think will help with your cash flow, I know businesses are growing. We need equipment. We need to replace old equipment. I just bought some new equipment for my own business. But I don't want you to buy new equipment and pay for it in full right now. That's not a good decision right now. If you need to finance that with a small percentage rate to keep some of that cash flow in your business, that's my recommendation for you right now. I am 100% the person that says pay off your bills and do not carry debt. I'm the one that will pay off their house instead of having a low mortgage payment, you know, a low percentage on a mortgage. But right now, when we're getting recession ready, you don't want all of your cash flow tied up in one piece of equipment that you've paid for in full. So if you have an option to finance that on a low financing percentage, I'm going to recommend you do that right now so that we can keep our cash in our bank because we're going to need it. We need to be cash flow positive right now. And we don't know what's to come. We don't know what to expect. Over the next year. So we don't want all of our cash flow tied up in one piece of equipment and it's not easily accessible to us. The other thing that I want you to understand with your cash flow, and this is really, really important, don't wait until you need cash to have a backup plan. Okay, and so what I'm talking about is, do you have a line of credit? Do you have working capital? Do you have a business credit card or access to a short-term loan? If you don't have any of those things, now's the time to set those up for your business so that when you need them, you're not stressed out about how you're going to get it. If you don't need a business credit card right now, it's okay. Go ahead and apply for one. Go ahead and have one so that when you need it, you have funds available. If you don't have a line of credit, the great thing about a line of credit is that you don't pay on it unless you're using it. Same with working capital. You're not paying for it unless you're using it. I'm not saying go take out a loan and stuff all that money in your bank account and then you're paying loan payments. I'm saying have an option that when you need some cash, when you need some credit, you already have done the work. Apply for something now before you need it. The other thing that's important is having terms. So when you put something on terms, with a vendor, you don't pay for that until that term is up. So vendors that you've built relationships with, they can set up terms for you with your product, so with your purchase orders. So it can be net 30, it could be net 60, it could be net 90, it could be lots of different scenarios depending on how long you've been a customer of theirs and what kind of relationship you've built with that business. But what happens is you don't have to pay for that product for 30 days, 60 days, 90 days, whatever that term is. So if you can get one of your vendors to give you net 30, that means they're going to ship you the goods right now and you don't have to pay for that for 30 days. Okay, and that could mean everything for you. You have the opportunity to sell that before you ever have to pay for that. So that could really help you with your cash flow if you could get some terms with some of your vendors. So that's number 2, understanding your cash flow. And it's okay if you don't know a lot of those things right now, but it's time to get smart and it's time to start digging into that stuff because that's going to make or break you if we go into a recession. And along those lines, here comes number 3. Trim your expenses. If you're looking at your P&L every month, what are your biggest expenses? What are some of the expenses you didn't realize that you had? Let's talk through some of the expenses that I want you to kind of look at. What's your overhead right now? A lot of you listening probably work out of your home. Some of you have brick-and-mortar locations. Some of you have warehouses or off-site buildings that you pack and ship and do fulfillment from. So I want you to really look at your expenses. When I look at like my expenses with my warehouse, there's simple things you can do to cut your expenses. It could be setting timer on my AC units to go up a few degrees in the evening. It could be renting out space in a brick and mortar store to another merchant to sell their items. You can make commission from them. They could pay rent to you. I want you to think about the overhead that you have and how you could trim some of that. Very small things can add up to hundreds of dollars every single month. Something else that I looked at with my bookkeeper recently, we went through my bank statements and credit card statements, and we looked at every recurring charge that I had. Am I using that? And is it beneficial to me to grow my business? And so what I found was I was paying hundreds of dollars for apps and software programs that I was not using anymore. And all we had to do is go in and cancel some of those. I mean, it was like I had done a webinar one time. And so I had paid for this webinar app, realizing that it was a recurring charge, but I wasn't using that platform anymore. So that was something that was like $149 a month, $149 a month. I've been paying that for 7 months, not really realizing that I didn't need that anymore. I think that you could look at your email list, your text list. Have you done any cleaning and purging of those lists lately? Don't be paying for dead weight on your email list. Don't be paying for someone not to open your emails. Do a cleanup. You're paying for every one of those people to be there. If you're on a paid service, you might have an less than that. So you might be getting that for free, but once you hit a certain number of people on those lists, you're paying for every one of those people. Stop paying for people not to open your emails. So let's scrub those lists, kick out the dead weight, trim our expenses. Don't trim those too much. Like, don't kick out the people that are opening your emails and buying. We need those people. We want to keep emailing them, but let's get rid of the dead weight. Some other thoughts on trimming your expenses are packaging and shipping. We've been working on this and really kind of dialing into what our expenses are and how can we, how can we make a change with some of that. And so we recently switched out our poly mailers with our boxes. And so I can't do that every month because sometimes there's hard goods that go in those boxes. But anytime you have an all soft goods box that month, it's okay to put it in a poly mailer. We had a lot of fun with it. We took the box and slashed that out in pink and wrote bag over it. We made these cute poly mailers that looked exactly like our box, but they said bag instead of monogram box. It said monogram bag. Everything in there was soft goods. Those bags cost me $0.35. Our boxes cost me $1.97, so I'm saving $1.60 for every subscriber in that month, which equates to thousands of dollars a month. Now, I can't do that every month, or I sure would, I sure would make that change. But any of those months where you could do that with your own subscription boxes and switch them to poly mailers, it's going to be so much more inexpensive. And if you're trimming your expenses right now because we're getting recession ready, that's one easy way to do it. The other thing is to renegotiate your shipping contracts. If you have contracts with carriers like FedEx or UPS, yes, I know that fuel prices have increased. Yes, I know that they have increased all of their prices. But what's happened is, as the buying habits have gone down for consumers, so have their shipments. They're not delivering as many boxes as they used to. And so they need your business right now. So go to your rep, go to them and say, hey, my prices have increased a lot. And mine did, mine have over the last few months. And I, and I just went to my rep and I said, listen, these prices are getting crazy. And I'm showing how different carriers are different prices. So you've got to put a little bit of proof behind what you're asking for. Can you reduce my rates? And after several conversations, they, they were happy to reduce my rates. They came back with a great solution for me and for them. They want my business. They want my continued business. I have recurring revenue for them because I ship out so many packages every single month. Don't underestimate your power that you're bringing to other businesses with your recurring business, okay? So can we save with our packaging and our shipping? I want you to analyze that. What is the true cost of your packaging right now? I want you to think about the box and the tape and the stickers and the shreds and the tissue paper, whatever you're using. I want you to look at that cost and see how you can trim that. I also want you to consider buying in bulk to reduce your costs, and this is kind of counterproductive because if we buy in bulk It takes more cash flow up front, but it's reducing the overall cost of each item. So I don't want you to buy so much in bulk that it's going to take you 10 months to use it all. But think about 3 months, think about 5 months buying in bulk something that you use all the time, and see if that will help reduce and trim some of your expenses. We just have to get smart. We just have to start digging into these little different areas that we've just always been doing and they've worked great, but how can we trim some of those expenses now so that we have more cash flow in our bank going into a possible recession? We've talked a lot about finances. So I'm going to shift your brain to thinking a little bit more creatively. Number 4 is get in front of new people. It's not the time to pull back your marketing efforts. It's kind of like investments, right? So when, when the war started a few months ago, I instantly was like, oh my gosh, my investments. I need to pull out. I'm worried about what's going to happen with the stock market. And it's really the same way. The people that went through the recession, you know, decades ago that just stayed the course came out of it on top. And it's the same with like our investments. It's the same with our business. It's the same with our marketing. If we just stay the course, power through it, make smart decisions, we're going to come out of it on top. As gas prices continue to go up, more people will be staying home. So I want you to think about how you're serving your audience. Are you serving them in an educational way? Are you teaching them? Are you showing them how to do something? Are you giving them a skill or are you entertaining them? Because people will show up for all those reasons. Try a new platform. If we've been very consistent with our Facebook and our Instagram or whatever platform we're on consistently, try something new. Try YouTube, try Pinterest, try podcasting, try TikTok, try something new to get in front of a new audience. Get in their inboxes and their text messages. Don't stop the marketing that you can do for free. People are still responding to text messages. People are still clicking on their emails. Get in their inboxes. Experiment with your posts and your videos. People are so fatigued by seeing the same thing over and over again. We have to make things new, fresh, and fun. And so we come to this crossroads of being consistent, but also bringing something new to the table. We have to shake up the feed to get noticed. And if the feed right now is negative and worrisome, we have to be lighthearted and fun. We have to give them something different. So how are we going to take our businesses and be new, fresh, and fun with it? Try something new. Step out of your comfort zone, but don't stop. Don't stop marketing. Don't stop putting yourself out there. Don't stop serving. Don't stop showing, teaching, sharing. Restarting is so much harder. Don't stop. Get in front of new people. We can do this organically. We can do this with paid advertising. And I'm a firm believer that you need a little bit of both. So don't stop all your ads, shake them up a little bit. Don't stop showing up on social media, get in front of new people, get on a new platform, try something new. Number 5, create additional revenue streams. The people that are most successful right now have multiple revenue streams. Don't put all your eggs in one basket. Starting a subscription box can create real, sustainable, reliable income. If you already have a subscription box, I want you to think about expansion revenue. That's adding additional revenue to your already existing subscriber base. So if you sell a box right now and you only sell a box, how can you expand on their order and their experience? What's complimentary to your box that you could sell to your customer? You already have the customer. You already have a loyal customer if you have a subscription box. If you don't have a subscription box, now is the time to start that revenue stream. Research your audience. What do they want? What do they need? Fill a gap in the market. What's not out there? What are you bringing to the table that's different? I want you to really think about diversifying your income streams. I'm a firm believer that all product-based businesses should have at least one digital product. And you're like, well, what does that look like, Sarah? I don't, I just sell products. What do you mean a digital product? You can sell templates, you can sell tutorials, you can sell how-tos, you can sell downloads and eBooks. Like think about what you do every day. And I was just kind of brainstorming as I was prepping for this. Podcast episode, but I was like, let me think about in my business, what could I have a digital product for? And here's what I thought about: flat lays. I make flat lays for all of my t-shirts and products, and I'm really good at that. Like, it's something that I have a skill to doing. Could I make those flat lays with blank shirts and sell flat lays? Absolutely. I could, I could do that on Etsy. I'm really good with lettering and fonts. I could sell fonts, I could create my own fonts, I could create my own monogram fonts. That's something I could do. And I think about all the knowledge I have behind monogramming. I could do some how-tos, what stabilizer is best for what products. I could teach my skill of using embroidery machines and monogramming. So I want you to think about what are your skills and what are the things that you pay for? Like, I'll buy a flat lay, saves me a whole lot of time, but I could also create some flat lays, digital download flat lays. Think about what a digital component to your business could be. Expand on that. Create an additional revenue stream, especially one that doesn't cost, doesn't have a big cost of goods sold on there. Let's get into number 6, offer customization and convenience for a premium price. In the past, we've done, you know, everything's the same, everybody gets the same, and it's easy and it's bulk and it's no-brainer. But right now we live in an age where people want to be catered to. The more you can cater to your customer, the more you can provide customizing and convenience for them, the more loyal they become. And so think about a couple different things. You could offer like same-day or next-day fulfillment and charge $4 at checkout. It doesn't cost you anything extra to ship something the same day. You just have to be on top of your orders. But people will always pay a premium price for a premium experience. It's that first class versus coach, right? You guys are going the same place, but do I want the nice comfy seat where someone's not touching me? Yes, always. Do I want someone bringing me drinks, as many as I want? Yes. Do I want to be left alone and feel comfortable and have space to cross my legs? Yes. If I can afford the first class, I'm going to take the first class, right? And you will have customers in that same situation. They can afford the upgrade. If they can afford the premium offer and they want it, they're going to buy it. So think about that. Think about how you can personalize some of your products. You know, I love a good personalization, but can you add a logo? Can you add a name? How can you do that? Can you offer that? Can you offer like a buy more and save? If you buy, you know, 3 bags of coffee versus 1, I'll give you a great deal. It's convenient. I'm going to ship it all together. Buy more and save is great. If you can customize our offerings to meet the needs of our subscribers, you're going to have more subscribers and more loyalty. I did an interview on the podcast last week with Rhonda from Posh Pups, and I love how she just made it super easy to get her bandanas for multiple dogs. So instead of just having a subscription for one dog and then, okay, you have to sign up for a subscription for all your dogs separately, she made it easy. I've got one dog, I've got two dogs, I've got three dogs, et cetera. She made it easy for them to click and check out and she made it convenient. And she made— she also gave a discount for multiple. Dogs for her dog bandanas. And so the more we can make it easy for our customers to customize their experience— if I've got, you know, 2 dogs, I want 1 subscription for both dogs versus having to sign up for 2 separate subscriptions and seeing those 2 payments come out of my account every single month. The more we cater to our customers' needs, the more loyal they are to us. So number 6 was offer customization and convenience for a premium price. Number 7, wow your customers. Instead of having someone that does customer service, I need you to look at it like a customer service concierge. I'm going to hold the hand of this customer through whatever problem or process they're going through. If we can stop automating everything and start really being a concierge to our customers, we're going to wow them. They're going to come back. If they can buy something from you and they've got a customer service concierge taking care of everything that they need, why would they go buy from a big box store? I hear it all the time. Your customer service is amazing. I feel taken care of. I feel seen. They're going to come back and buy from you even if you're $5 more than Target or Walmart, whatever you're selling. Think about the customer service role as a concierge service to your Customers. I don't think we say thank you enough. We need to show our appreciation to our customers. I know we feel appreciation because we're small business owners, but I don't think we show that. I don't think we let them know how important they are to the sustainability of our business. So let's say thank you a little bit more. Surprise and delight your subscribers. I love doing this. I don't ever tell them I'm doing this. It's just a surprise. In their subscription boxes. It might be like an anniversary gift, like you've been a subscriber for 2 years and you get this special gift in your box. It could be a birthday bonus if it was their birthday month. You could add a coupon to your store. You could create some bonus bucks that they could redeem in your online shop. You could give them first access to new collections or new products. Those are just a few ways that you can do that. I've put together a whole PDF of 10 different ways you can surprise and delight your subscribers. And I would love for you to have that. So if you're listening right now, just text me the word surprise. Text me to my text number if you're on my text list already. If not, that number is 940-204-0023. You can find that number in the show notes too. Um, just text me the word surprise and I'll email you over that PDF, 10 Ways to Surprise and Delight Your Subscribers. There's a lot of things we can do that don't cost us a lot of money. The bottom line, we don't know what to expect. The last few years taught us to expect the unexpected. Don't panic. That's the worst thing that we can do. Spend time understanding the financials of your business and make educated decisions. Don't be afraid to serve and to sell during these times. We have to continue. This is what we do. Our business will not survive if we don't continue to serve and sell, and I want you to feel comfortable doing that. People want what you have to offer. The businesses that push through a recession will be the ones on top when it's all over. If the idea of creating a subscription box is swirling around in your head, I encourage you to head over to launchyourbox.com with Sarah.com. Get on our waitlist and grab some of our free downloads to help you get started. That's launchyourboxwithsarah.com.