Let’s be honest: no one wants to hang around the watercooler talking about the possibility of a recession. It’s depressing.
Recessions fall under the category of “things we’d prefer to avoid ever having to think about.” It’s up there alongside the final season of Game of Thrones.
But ignoring the possibility of a recession doesn’t make the problem go away. It just makes it worse when one finally does occur.
There’s a lot of speculation about whether or not there will be a US recession in the next year or two. While some indicators are pointing to a growing chance of a US recession, the truth is that no one knows for sure exactly when the next one will happen. One thing experts do agree on though, is that it’s a matter of when, not if, there will be another recession.
The good news is that working to recession-proof your small business now will help ensure it can weather the next economic storm, and perhaps even thrive.
In fact, according to past research published by the Harvard Business Review in 2010, 9% of firms did better after a slowdown than before it. That figure may not represent a huge amount, but it does show that there are opportunities for businesses to succeed in even the toughest of circumstances.
Here are seven tips to help recession-proof your business.
1. Focus on finances
Every small business owner would love to be able to have a year’s worth of cash set aside to prepare for a recession. But that’s not feasible for every business. Whether you’re able to set aside a year or three months’ worth of cash, if possible, create a recession war chest that will help you get through emergencies or capitalize on buying opportunities that are too good to pass on.
But that’s not the only way to be proactive with finances. Flex your budgeting skills (or hire someone if that’s not your forte). Make it a practice to look for opportunities to cut discretionary spending and renegotiate any renewals to find cost savings.
Make sure to keep close tabs on receivables, but remember that in a recession your customers may also be feeling the effects. Offering payment instalments can go a long way toward helping your customers get through the tough times and increase consumer loyalty. Incentives can also be useful to encourage prompt payments that will help you avoid using collection services. Because no one likes conflict when it comes to money, it’s also beneficial to streamline and automate payment processes to heighten transparency. Payments solutions like Veem’s invoice feature take care of sending out payment reminders to customers so you don’t have to.
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Bottom line: cash flow is the lifeblood of any business. So long as your business can maintain a healthy cash flow, it’ll be set to survive an economic crisis.
2. Examine your supply chain processes
While you’re examining your expenses, take a close look at your inventory practices. You might be comfortable doing things a certain way, but that doesn’t necessarily mean it’s the most cost-effective option.
Look into whether you are consistently ordering too much of a particular item. Are there suppliers that offer the same goods for less? Do any of your suppliers give discounts for bulk orders?
Don’t forget that more tariffs are pending in the trade dispute between the US and China. Businesses that find alternative solutions and adjust their supply chain network to avoid additional tariffs will undoubtedly have an advantage.
3. Stress test your business
If you’re not already using a stress test for your small business, you might want to think about changing that as soon as possible.
A stress test is used to identify a business’ strengths, weaknesses, opportunities, and threats. Stress testing involves creating different crisis scenarios to determine how your business would respond and creating contingency plans to address vulnerabilities.
There are a lot of unknowns with recessions (how long they last, how bad they’ll be) but a stress test will help to plan for the worst-case scenarios.
4. Don’t neglect marketing
Cutting back on marketing is the first move that a lot of small business owners make to when things get tough. But that can do a lot more harm than good.
Remember, cash flow is the lifeblood of businesses. That cash flow depends on customers knowing your business exists. You see where we’re going here. While cutting marketing costs may ease your budget in the short-term, it will hurt your business in the long-run if you become irrelevant and overshadowed by competitors, or by the news of the day.
In fact, in a recession, it can be beneficial to ramp up marketing efforts.
Just look at Domino’s Pizza. During the last recession, the fast food chain was dealing with pretty terrible customer satisfaction and heard complaints that compared its crust to “cardboard” and its sauce to “ketchup.” But rather than let the negative feedback bring the company down, Domino’s embraced it. In 2009, Domino’s responded to the criticism by rolling out a brand-new pizza recipe and publicizing the reinvention process in a marketing campaign to raise awareness. The effort was a massive success, and the company’s profits soared thanks to its truthful and “self-flagellating” ad campaign.
Use an economic slowdown to distinguish your business from the competition by highlighting how your products or services are superior or unique. Keep in mind that marketing strategies don’t have to break the bank. There are many cost-effective ways to get your message out, especially using social media.
5. Don’t forget about your employees
You’ve probably heard some version of the saying, “a company’s greatest asset is its people.” That adage can become very apparent during a recession.
When times get tough, small business owners often cut things that they consider non-vital, like company activities and outings or incentive-based competitions. Sure, these things cost money, but they also make the workplace fun and boost morale, a resource that’s hard to come by in trying times.
Eliminating the things that make your employees look forward to going to work in the morning can have negative consequences that affect your bottom line. Think lack-luster sales and subpar customer service.
It’s understandable that some things will have to be cut, but retaining a few activities or incentives will pay off by helping preserve staff morale and motivation, which will translate into increased productivity.
If employees have questions about how your company is dealing with a recession, be as open and honest with them as possible. Vagueness and distrust can ruin a team on a good day, let alone during a recession.
6. Expand to new markets
According to the Harvard Business Review, a central factor among companies that have prospered during economic downturns is a focus on growth, not just cost-cutting.
Expanding to new markets can help diversify your business in tough economic times. Think about it this way: if sales dip in the US because of a recession, you could make up the difference by looking to thriving markets around the world.
That’s what Lego did in the last recession. While the US was grappling with the worst of the economic crisis, Lego expanded to Asia and concentrated on increasing sales in Europe. That contributed to Lego’s profits soaring by 63% and reaching an all-time high. Granted, not all businesses have the capital and network to expand so quickly. However, doing your research now may help you in the long run. You have nothing to lose.
7. Make it all about the customers
This is one area where you really don’t want to get complacent. To make it through a recession, it’s crucial to increase your customer base without neglecting your established clientele. And that takes planning.
Get creative with strategies that will attract interest, earn trust, and encourage loyalty. Look at what your competitors are doing and figure out what you can do better. But don’t lose sight of what’s most important: providing value to customers.
Companies that excel in a recession are those that don’t sacrifice customer experience. A cost-cutting idea may look good on paper, but if it drives customers away, what’s the point?
Take steps to improve your customer experience before a recession by getting detailed insights into customer behaviors. This data will help you understand how important you are to customers, their wants and needs, buying habits, and how you can better serve them. These insights are your ‘holy grail’ for attracting and retaining customers before, during, and after an economic crisis.
Also, resist the knee-jerk reaction of letting people go as soon as the economy slowdowns, which can jeopardize consumer success. Instead, look for ways to automate certain tasks while moving employees into positions that drive the customer experience.
The secret to weathering an economic storm comes down to this: be proactive rather than reactive. No one knows when the next US recession will hit; it could be later this year, sometime next year, or in 2029. But it will happen at some point. Starting to prepare now will set up your business to not only survive an economic crisis, but emerge even stronger and more successful.
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