A business cannot thrive on its own. If the market trends are good and growing most businesses benefit from that growth. But, during a recession or slow down every business gets impacted, regardless of their size and industry. People get jobless during the recession. They have less money to spend and thus they buy fewer things. As a business owner, what can you do to avoid the damages due to recession?
Fortunately, there are many ways to recession-proof your business so that it won’t fail just because of a general economic downturn. Read on to learn how to keep your business thriving despite the economic recession.
As a business owner or manager, it is important to keep a watch on the market trends. A recession doesn’t ever hit all of a sudden, there is typically a gradual process and there are ample signs that can indicate that the recession is imminent. When it hits, you can follow any or all of these six practical solutions that have helped defend countless businesses in various industries throughout previous recessions. You need to first analyze the benefits of these solutions and then implement then into your business.
How do Recessions Impact Small Businesses?
When a recession hits, all types of companies get affected. But, small businesses suffer the most. The biggest reason for this is that the owners of small businesses often do not have multiple sources of income. Larger companies have many options to survive the recession. They have large reserves that they can use to sustain or they have multiple income streams that keep them afloat during bad times. They have big teams of talented people who can help them create policies and strategies to survive the recession.
Small businesses need to take care of themselves and these six important tactics can help them to recession-proof their business.
6 Ways to Recession-Proof Your Business
Talk to suppliers and partners
For small businesses, their core strength is their suppliers and partners. As soon as you see the signs you need to implement the first strategy. And that is to talk to your partners and suppliers so that your business gets the required material and money to sustain the recession.
Remember, when a recession hits your competitors might lower their prices to stay ahead or capture the market. Are you prepared for that? Will you be able to stay in profit after lowering your product or service cost? To lower your selling price you need to first lower your production cost. So suppliers of raw materials to your business are crucial.
Sometimes, you might need to upgrade your technology to lower your production cost. Your partners needs to be on board to invest in those upgrades. In short, your partners and suppliers need to be on the same page based on the decisions that you want to make.
Create an emergency fund
A financial cushion is a sensible business investment, particularly for smaller businesses that can’t quickly tap debt markets in the same way that a large enterprise might be able to do. Having financial backup during a recession is even more important.
Establish a cash reserve that can pay up to six months’ worth of basic needs, such as payroll, inventory, and utility payments, in the event of a financial emergency. You can gain a head start by aggressively collecting the receivables owed to you. You can also try to find out investors who can help in improving the technology so that you can stay ahead in the market. This will help in two ways – you will get extra funds and at the same time, you will be technologically prepared to beat the competition during the recession.
Reduce cost
Since overhead costs are expenditures that are always incurred, regardless of the amount of revenue, they provide a particular challenge during a period of economic contraction.
The overhead costs can be cut drastically. When a company is on a growth trajectory company tends to increase its overhead costs. During difficult times overhead costs should be reduced as a priority.
Renegotiating with vendors that offer you various types of services is one way to reduce costs. Renegotiating contracts with suppliers, switching to a different vendor for services such as office cleaning or communications, or decreasing or eliminating bonuses for staff members are a few examples of renegotiation. Eliminating travel and leisure expenses and outsourcing various works can also help in reducing costs.
Outsourcing can save many infrastructural costs and help you stay in the competition. Finding ways to minimize overhead costs before an economic downturn can not only help your business survive but also improve overall efficiency with less staff and resources.
Uncertain Situation Due To Lack of A Strategy
Small firms face heightened levels of uncertainty during recessions. This usually happens if the businesses have not prepared themselves beforehand for the recession. Recessions are not always bad for business and can often present many companies with valuable opportunities. But the only condition is to have a concrete strategy before the recession hits.
Build strong relationships with people and brands you know
Any business – big or small – faces less damage during a recession if they have a strong bonding with the customers. If your customers are loyal and have faith in your products and services they will stay with you during bad times too.
If you haven’t thought about it until now then start connecting with your customers on a personal level today. You can come up with multiple strategies to do so. But, the end goal is to keep your customers happy and content.
Your customers also face many difficulties during a recession. Having a good relationship with them will help you understand their challenges and prepare a strategy to cope with the same. For example, reducing price, or offering a subscription package that offers free services for some period of time can help your customer stay in a comfortable zone.
Recession-Proof Industries
There are many industries that are called recession-proof industries. For example health or education industries. If you are in this segment of the business then you won’t face the brunt of the recession like other industries. If you can switch to any such types of segments then you should do it now.
If switching is not possible then diversify the products/services you offer to connect with these industries. Thus during recession, your products or services from these segments will keep you afloat.
Conclusion
A recession can have a significant impact on any industry, regardless of the financial health of your company. While it is impossible to escape a recession, some steps may be taken to safeguard your company from the effects of the consequences.
You can do many different things to shield your company from the effects of a recession, such as increasing the effort you put in, diversifying the products and services you offer, or investing in more environmentally friendly technology.
