Consumers are currently adjusting their spending habits to adapt to higher costs for just about everything, which can make business forecasting feel like a moving target. However, there are steps that alcoholic beverage brands can take in the meantime to make their operation less susceptible to the effects of a downturn.
Review Impact of the Most Recent Downturn
Every downturn is different and the current one will differ from previous downturns, but there are still lessons to be learned from assessing how your business performed previously.
The most recent economic dip occurred in 2020 during the pandemic shutdowns.
Brands should review:
- Which customer cohorts were most affected
- Whether your product is a staple or discretionary product or service
- Whether your business experienced a shortage of materials
This evaluation should assist your brand in determining whether any lines of business are particularly at risk.
Create A Robust Forecast
Your business should put together a forecast in order to run scenarios and test assumptions and input swings. A forecast should provide your brand with forward-looking information that you can use to adjust. Create interactive variables and see how changing them will affect projected product and service delivery, financial results, and working capital requirements.
One important segment to look at when making these adjustments is your customer list. Figure out if there are any troublesome or low-margin customers that don’t fit your revised business plan.
Stay Close to Your Working Capital
During any challenging economic period, cash is king. Your business should make sure to increase turns on all current assets while smartly slowing turns on current liabilities. After revising your forecast, you should have a better idea of your true inventory needs and whether or not there is any obsolete inventory that can be quickly liquefied.
Your business should also review any receivables, particularly those over 60 days, to follow up and collect. At the same time, payables should be stretched out prudently while ensuring that you remain on good terms with vendors.
Talk to Your Third-Party Capital
During economic slowdowns or the threat of a slowdown, third-party capital becomes more risk-averse. Your sources of capital prefer not to be surprised, particularly in challenging times. Lenders will be very active in adjusting their balance sheets and will look for any excuse to call an outstanding loan or cancel a line of credit.
Keep sources of capital informed of changes in your brand’s business outlook, whether they are positive or negative. This is the key to being trusted as a partner and being able to court your sources of liquidity during challenging times, particularly if there is a need for working capital or an opportunistic acquisition.
Pay Attention to Profit & Loss Ratios
Understand your gross margins and constantly look at below-the-gross-margin line costs. As revenue increases, the ratio of operating expenses to revenue should be declining. If revenues do decline, search high and low in your expense line to reduce costs and keep your P and L ratio in line without putting your business at risk.