No matter how well-run your business is, you can’t be 100% sure that it won’t suffer in a recession. It may not even survive a recession.
Even the best-run businesses aren’t fully immune to the impacts of market and economic conditions. These widespread economic downturns tend to emerge from factors largely outside individual organizations’ control, having industry-wide, national or even global impacts.
However, there are things business leaders can do better to protect their company’s finances during difficult times. Below are 12 effective ways your business can survive a recession.
What is a Recession?
A recession is defined as a severe, widespread, and long-term decline in economic activity. Because recessions can last six months or more, one widely accepted rule of thumb is that two consecutive quarters of drop in a country’s Gross Domestic Product (GDP) constitutes a recession as well as rising levels of employment, falling retail sales, and contracting measures of income and manufacturing for an extended period.
Recessions may also last as little as a few months, while the economic recovery can take years. A recession can be caused by a lot of factors including a sudden economic shock, excessive debt, too much inflation, and technological change.
How Does a Recession Impact Businesses?
In a recession, the economy struggles, people lose work, companies make fewer sales, and the economic output declines. It can be hard to survive a recession.
Due to this, businesses are typically forced to cut back on the number of hours they offer their employees. They may also choose to hire fewer new employees, rather than hiring those who have proven themselves to be less productive.
It’s also harder for people to find a job replacement during this time since more people are out of work. People who keep their jobs may see cuts to pay and their benefits, and struggle to negotiate their future pay raises.
In a recession, many people find themselves unable to make their mortgage payments or other bills on time. This can lead to foreclosure, loss of your home, and even bankruptcy.
If you’re planning on investing in stocks, bonds, and other types of investments that lose value during a recession, it’s important to remember that these investments could temporarily harm your savings account and retirement plans if the economy doesn’t improve soon after you invest money in them.
With more people unable to pay their bills during a recession, lenders tighten standards for mortgages, car loans, and other ways of financing your own business. You need a better credit score or a larger down payment to qualify for a cash loan which would be the case during more normal economic times.
How To Survive a Recession?
Although your business will likely see a downturn during a recession, there are still ways that you can survive and keep your business running smoothly through the tough times.
Here are 12 ways you can survive a recession:
- Assess your business’ health
During a recession, it’s important to assess your business’ health. You may be able to ride out the storm with little or no damage, but if you aren’t careful and take stock of your situation, you could lose everything.
When consumer spending and sources of capital decline, they can cause a business to feel a pinch in its budget. This means that some difficult decisions may have to be made regarding product pricing, marketing initiatives, hiring, benefits, and even new launches.
- Implement change
Realign your staff or restructure your organizational chart. This may mean changing roles and responsibilities or delegating tasks to others. Evaluate products and services to ensure the market demands continue to be met for your clients.
Readjust benchmarks and projected growth targets. Not every problem can be solved at once. Prioritize issues with the highest potential to damage your customer satisfaction, business culture, and bottom line.
- Make customers your priority
As a business owner, you’re in charge of making sure your customers feel like they’re getting their money’s worth from their purchases and their interactions with your company as well.
That means being responsive and attentive, even when things are tough for you. They want to know that when they shop with you, they’ll be able to rely on you for good quality products or services even if it means putting up with some inconveniences or delays to get what they need.
- Seek assistance
Don’t be afraid to seek assistance and help from others who have been through this before. If a friend or family member has gone through this, they’ll likely be able to offer advice and support.
Also, be prepared for the worst-case scenario. This means having an emergency plan in place and having enough money saved up to get through it if things do fall apart completely.
- Meet the needs of your employees.
When times get tough, it’s easy to forget about the people who make our businesses run. But putting their needs first is something all companies should do, even if the recession has left them with a flat budget.
The truth is that when businesses are facing tough financial times, it can be tempting to cut costs like employee benefits or employee salaries. But if you do this, you’re likely to lose good employees in the long run.
- Get creative to survive a recession.
You should be more creative and have new ideas to survive a recession. The first thing is that your business should be as flexible as possible. You need to be able to adapt to new trends and changes, which means that you need to be willing to experiment with new products and services.
You should also be prepared for a change in how customers interact with your company. In a recession, consumers are less likely to spend money on luxury items or services. Instead, they will spend money on necessities like food and healthcare.
- Be transparent
You should always be transparent to people, especially when the economy is in a recession. People will trust you more if they know how much money is coming in and going out of your business.
They’ll also be more likely to trust your advice because they know all the ins and outs of your company, and they know that you’re not just throwing numbers around without any basis in reality.
- Scrutinize your expenses
When the economy is doing well, it can be easy to forget that there is still a lot of uncertainty, and that’s okay. But when things change, it’s important not to lose sight of what your business needs to thrive during a recession.
You should always scrutinize your expenses and make sure you’re only spending money on things that will help your business grow.
- Recession-proof your business
You always need to be prepared. While it’s important to think long-term, it’s also important to take action now. Small businesses should plan out their training, productivity, communication, and mitigation strategies long before they need them.
This will give them more time to implement them and ultimately get better results from those actions. Actions like these can help your business survive and thrive in a crisis.
- Protect cash flow
In a recession, business owners are often forced to lay off employees and cut back on expenses. Unfortunately, this can lead to cash-flow problems and it can happen quickly.
If you’re in this position, we want to help you make sure that you don’t get caught short by inflation or another economic event that could destabilize your business.
- Protect core competencies
A core competency is the set of skills and knowledge that we have that allow us to make a living, and it’s also the part of our business that gives us an advantage over others in our field.
If you have a business that is doing well but is not dependent on the economy, try to keep it going by focusing on what you do best and expanding on that. For example, if you specialize in books, don’t worry about whether or not people will buy them and just focus on making more of them. If you lose your core competencies, you’ll find it harder to survive the recession.
- Don’t stop marketing
Never stop doing your marketing. Your business might not be doing well anymore—but that doesn’t mean it can’t get better!
And if you don’t keep up with the marketing, you’ll never know how many potential buyers your business may have missed.
When it comes to the business world, nothing is guaranteed. Even a thriving company can fall victim to unforeseen circumstances beyond control like a recession.
The problems facing businesses today are more plentiful and challenging than ever before, but there are ways to protect your business and ensure it can survive a recession, even in the face of even the fiercest challenges.
By assessing your vulnerabilities, resources, and abilities to handle change, making smart decisions about your products or services, and building relationships with employees and vendors, you can safeguard your business for many years.
Author Bio: Marjorie Hajim is the SEO Manager for Friendly Finance. Friendly Finance is a leading loan matching service in Australia specializing in consumer finance. She loves growing businesses with a focus on their online presence and is passionate about organic growth and all things digital.