Protect Your Business: How to Prepare for a Recession
We live in uncertain economic times. The coronavirus outbreak has led to a global lockdown that affects many industries gravely. Some people worry about losing their job and their personal finances in regard to paying off student loans or credit card debts, while others have a business to take care of. And bankruptcy for one often means job loss for many.
It’s a good idea to know how to prepare for a recession, even if we manage to avoid one in the near future. Planning ahead will help you face any challenges coming your way, no matter what. We are here too, ready to give you a helping hand - don’t hesitate to contact us.
What is a recession?
It is typically defined as two or more consecutive quarters of negative growth of the country's gross domestic product (GDP), or the total value of everything that the country produces.
It generally happens when a significant decline in economic activity occurs. Among the main indicators are a drop in employment, manufacturing activity, consumer confidence and stock prices. All of these happened worldwide this year, mainly as a result of the coronavirus outbreak.
This is why it would be wise to check out the best ideas for preparing for and surviving an economic downturn.
It’s better to be safe than sorry - so start early!
Take care of your cash flow
It is important to keep money coming in. This is essential especially for small businesses that are more vulnerable in difficult times.
Here are the ways to improve your cash flow:
- Be aware of the changing economic conditions
- Speed up payment - invoice promptly and encourage customers to pay with clear due dates and overdue notices (use collection services when necessary)
- Extend payments to suppliers if possible
- Renegotiate contracts with landlords, contractors, etc.
- Use cash flow management tools
Review your inventory management
Determine how you can reduce costs related to inventory - without sacrificing the quality of products or customer experience, of course.
For example, reduce the number of items you order too much of. During a recession, it will be harder to sell, so keep inventory low.
Find an alternative way of shipping that’s cheaper. You don’t need to stick with a particular supplier if there is a better one. Think out of the box and see how you can save money.
Focus on what you do best
If you add too many new products and services, it can turn out to be a waste of time and money. That can even damage your brand and reputation.
The best strategy is to invest your time and money in the core values of your business. Understand which areas of your business drive the most value. Forget about the extras that don’t really bring you any profit. That’s how to make your business recession-proof.
Attract your competitors’ customers
It’s crucial to continue to expand your client base. That means attracting your competition’s customers too.
You can do this by offering more or something different than your rivals. Do your research and see how you can be better than them. Think about what people need and want. Great customer service is an absolute must.
Make the most of your current customer base
Pay attention to your loyal customers. Here is how to increase sales and customer loyalty simultaneously:
- Set up a sales incentive program
- Try suggestive selling
- Notify your customers about an upcoming promotion or sale
- Show your regular customers you value them
- Create a customers reward system
- Give away free samples
Step up your marketing
When times get tough, many businesses cut down on marketing as an expense but in fact, that’s a mistake. Consumers are going to change their buying decisions. It’s your opportunity to help them by providing the products and services they need right now.
The time to promote your business is now - especially when competitors limit or remove marketing from their budget. That’s how to profit during a recession.
Take care of your debts
When hard times come, debt increases rapidly, and it gets harder to borrow.
Make sure you keep your personal credit clean and pay off or at least pay down debt when you have the opportunity. Then you’ll have better chances of getting a loan when you need it. Focus on paying your high interest loans.
Restructure loans if possible, cutting interest rates. Manage debt wisely and on time.
Save up
How to prepare for a recession? Saving money is probably the most obvious answer.
Keep a separate savings account and set some money aside whenever you can. Be careful not to spend it unless you really need it. Financial discipline is key.
It’s a good start to have enough money stocked away to cover 3 to 6 months’ worth of expenses. Having a healthy emergency fund will certainly pay off.
Reduce expenses
See how you can reduce expenses. Re-evaluate your company policies.
What can you do without? Can you sublease some of your office space when you don’t need it?
Consult a financial advisor
It’s smart to have a good financial advisor by your side. They will follow the stock market closely and help you manage your finances better. A financial expert will help you see what you can change to reduce expenses and increase profit. They’ll also tell you how to prepare for a recession.
Consult your team
Often companies with decentralised hierarchy do better during recession. That’s because decision-making is dispersed throughout the organisation, making companies more capable of adapting quickly to new conditions.
Make sure that more senior executives and those knowledgeable about specific areas of the business always participate actively.
Diversify your business
Be careful with this approach to not overdo it and lose the core of your business.
However, if you have a good idea how to do it, it’s worth a shot. Diversify your client base, client acquisition and marketing channels.
Diversification would make you less dependent on just one line of business that can be affected in slow economic activity. Consider whether you depend too much on a limited number of buyers. Try to create a variety of new relationships and add several small revenue streams.
It is smart to have different sources of revenue so that you have a backup plan when times get tough.
Focus on the right resources
Determine which resources are worth keeping.
Having adequately trained, skillful and motivated employees can be crucial and contribute to creating a resilient organisation.
Investing in tech resources is also a good idea. Technology automates processes and lowers operating costs. It can boost efficiency and give you an advantage. This is especially true now when the situation asks for work from home and online communication with customers.
Find trusted partners
It is important to stay connected and continue to expand your professional network.
Find companies who want to work together in a good partnership with you instead of just taking your money and services. They will help you succeed even through a recession.
Our law firm will also be happy to help with any questions you have. We provide assistance with all types of contracts, tax law and accountancy, and more. It’s easy to contact us.
How to prepare your business for a future recession: Conclusion
Now you know what to do to prepare for a recession and any challenge in general.
Companies that plan for the long term perform better in times of economic downturns.
We can’t say for sure which the worst and best businesses for a recession are. However, some industries do better than others. Check out our bad economy business ideas if you want to branch out or start a new business.
During recession, don’t be quick to offer discounts. Try to expand geographically and offer products or services that address new demands in the ever changing market. Be on the lookout for new opportunities.
The advice above will give you a good idea of how to prepare for a recession but don’t stop there. You are the person who knows your business best. Take time to analyze the situation and come up with ways to make your company recession proof.
Good luck and stay safe!
