Many, if not all of the business owners reading this will have experienced the financial repercussions of the Global Financial Crisis and/or the COVID-19 outbreak.
If you still have a business, you clearly made some of the right moves.
Which leads to the question – what are the right moves now to recession-proof your business?
Most companies have a relatively narrow margin for error. A 10% decline in revenue could wipe out the entire bottom line of a business.
Having a contingency plan in place to manage profit is just one of the broader areas to address in times of crisis.
Change is going to be necessary – that much is obvious. But, specifically, what actions should you take?
Following are 11 actionable steps to shore up your business and defend it against the worst effects of a major economic downturn.
1. Assess your business’s health to identify the problem areas
Where does your business stand right now?
It’s important to assess this honestly.
Have you started to feel a pinch in your budgets due to a decline in consumer spending and available capital?
That’s quite normal in the months leading up to a recession.
You will likely need to make some difficult decisions regarding product pricing, marketing initiatives, hiring, benefits, and new launches.
2. Realign talent where it can be most productive
A recession is hard on everyone, and while it can have a damaging impact on morale, you need your employees to be more efficient and productive than ever.
This is no time to lose your best talent. Instead, focus on maximising it and ask yourself how you can better meet their needs?
To ensure your best talent does not drift away, you may need to realign them with new roles in your business or restructure your organisational chart.
3. Build a cash reserve
The first thing that happens when recessions hit is that companies start paying invoices more slowly.
Conversely, they also start asking their clients to pay sooner.
Ultimately, this scenario affects your cash availability. Without a good cash reserve, chances are you won’t survive a recession.
Unfortunately, it’s that simple. So, work on it right away – don’t wait for the recession to hit as it will be too late.
4. Manage invoices, payments, and debts carefully
As clients start taking longer to pay and others go out of business and can never pay you, your cashflow naturally suffers and your cash reserves get eaten into.
This can really damage your business’s fight for survival.
To minimise the effects of reduced cashflow, manage your invoicing and collections more carefully: that generally means invoicing early and following up on payments promptly.
Remember that debt compounds quickly when budgets tighten, so pay off vendors while you have the cash and claim what customers owe you as soon as possible.
5. Trim existing costs
Look at your existing costs and eliminate unnecessary expenses. Leave no stone unturned.
While outsourcing can help you save money, be very careful about outsourcing important strategic or operational functions.
Essential business roles and functions that make you competitive (your “special sauce”) are usually best left in-house.
The non-essentials that are outsourced will vary from business to business – but they are usually the easiest roles to fill and, also, the easiest to trim when a recession really starts to bite.
6. Scrutinise your financial statements
If a recession is approaching, it’s never been more important to keep track of your company’s financial statements.
This is just good management practice but, in good times, it often gets forgotten.
During downturns, it’s more important to keep your accounting updated and review reports regularly so that you have a clear picture of what’s around the corner.
7. Diversify your client base
Are all your eggs in one basket?
One of the greatest mistakes you can make is to have your revenues concentrated in a few clients.
During good times, this may not be a concern but during a recession, it can kill your business.
If one (or a few) of your clients leave, go out of business, or start paying slowly – the sort of things that happen during downturns – it will seriously impact your business.
If you start diversifying your client base now, you will be in a stronger position during a recession as it will soften the blow of any one client going out of business.
8. Focus on your strengths—and your best customers
Identify the strengths that have enabled your success to date and those that will be important in the future.
- Which of our capabilities and skills are most critical?
- What distinguishes our ability to serve customers effectively?
Also, identify your highest-margin customers and understand what you are doing right for them.
Develop a game plan, in the event of a downturn, to protect and build on the strengths that have allowed you to be indispensable to them.
In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers.
9. Diversify client acquisition and marketing channels
Diversifying your marketing channels and client sources will put you in a stronger position to attract new clients on the “front end” of your business as some clients inevitably fall off the “back end”.
What happens if you have a single source of clients from one marketing channel and it dries up? It will be very difficult to compensate for lost clients.
Consider lead capture strategies, email marketing, social media, Google Ads, Facebook Ads, as well as more traditional offline ways to bring new clients to your business.
Now is not the time to cut back on marketing – it’s time to be smarter about your strategy.
10. Win the competition’s customers
If your business is going through rough times, it’s likely that your competitors are too.
One way of expanding your client base to prosper in tough times is to win customers from your competition – disgruntled customers who you can potentially promise a better service to.
To draw customers over to you, offer something extra or a little different to what the other guys provide.
11. Look after your existing customers
It’s much easier (and less costly) to get sales from existing customers than new ones.
To do that requires looking after your existing customers so they do not drift away. This can increase sales without incurring the costs of finding new customers.
Focus on providing excellent customer service. Ensure that your customers or clients love what you do or sell and keep them happy by identifying and meeting their needs.
You want to retain their business at all costs during a recession even more than at any other time.
You can’t do much about a recession but you can prepare your business for it…
Recessions are unavoidable but if you plan ahead, your business can survive and grow stronger as a result.
Ideally, this is an ongoing process started when times are good – not just a reaction when times get tougher.
Unprepared businesses look to slash costs, reduce employee numbers, and take other short-term measures rather than carefully planning to be well-positioned after the recession passes.
To recession-proof your business and ensure you have a competitive edge when the economic climate starts to bite, follow the steps above and consult 360 Accounting and Financial Solutions where we can help you in providing insights and delivering outcomes. Contact any of our specialists at [email protected] or by calling 1800 360 237.