Overview: Learn recession-proof tips for your business to stand out in the market and negate the fluctuating industry
With a lot of doom and gloom in the headlines, economists are pointing toward a looming recession that a variety of factors may cause. The covid-19 pandemic situation sparked a surge among Americans to start their own businesses – and we don’t see a slow-down anytime soon.
The economy doesn’t stand still – constantly fluctuating – and just like businesses, either it’s growing or shrinking. So as we all continue to work through and post covid-19 crises, we can be certain that we’ll experience a boom in the foreseeable future. Let’s consider how we might handle future economic changes should another crisis hit – as one is still in progress.
With some pre-planning, you’ll prepare your business for a recession — this includes future downturns or changes in the marketplace — so you’re as equipped as possible to weather the storm. Here are eight ways to proactively recession-proof your business.
Do a gut check on how much risk your organization can handle – assess the risk attitude and multiply it with the additional risk it’s expected to take. To recession-proof your business, it’s essential to evaluate your staff, leaders, sales team, marketing team, and systems to determine how adaptable everything is and how they can absorb before cracking under pressure.
With that, layer in the hard costs of missing goals and soft costs such as reputation management. Once you gather the necessary knowledge, consider the additional risk factors your business can take and create a range of tolerance if it falls on them. Also, list the metrics to measure it.
Take inspiration from some recession-proof industries (these are industries where customers continue to purchase goods and sales remain high no matter what’s going on in the economy (for example, no matter what happens in the economy, people still need certain household items on a recurring basis such as toilet paper and paper towels).
Try to create similar sentiments among customers even if your product/service isn’t as essential as, let’s say, ambulance or health service. One way to achieve this is to niche down.
So let’s say instead of going for an all-purpose bakery, go for a gluten-free bakery – or instead of a sporting goods store, consider opening a soccer store. Or, instead of being a realtor, be a home-buyer consultant – you get the idea. But you must choose wisely as niche down isn’t a piece of cake but requires truly mastering the niche. Otherwise, the customers will be unsatisfied and may abandon or alienate you.
Although it’s not an easy strategy to execute, customers will more likely support your business if you’re doing it well. With the excellent services that you’re offering, they’ll become your regular buyers.
With your financial forecast and data in place, you can experiment with different economic scenarios to determine what may happen to your finances and profits in different situations. Start testing to slow down your entire business and then specific revenue streams. By creating such scenarios, explore how you might react by reducing spending funds and forecasting a drop in other expenses.
What spending expenses can you trim? What spending is essential to keep the doors open? Analyze these factors and walk through different scenarios as they’ll help you consider the changes you’ll need to keep your business afloat.
As you continue experimenting with different financial scenarios, keep a check on what may happen to your cash flow. Determine if you can save enough cash in the bank for different situations. If not, what changes should you adopt to keep your cash flow stable? This is where having intertwined financial forecasts is valuable – so when one part changes, it automatically reflects everywhere else too.
In addition to experimenting with different scenarios and cash flows, it’s helpful to focus on the current and real-world cash flow to build good habits even when things are going well. Spend your maximum time ensuring that your customers are paying you on time so you can make systems to keep receivables under control. In addition, this practice will also help you build a cash cushion.
Now, this is an important strategy — making a cash cushion or “rainy day fund” isn’t easy for businesses. Since most companies spend much of their cash reinvesting into the existing business to expand the revenues, you should adopt the habit of opening a business line of credit to use a cash cushion.
Ideally, you won’t face a scenario to use this unless you’re in absolute need. It will cost your business very little to maintain.
To help your business stay flexible and flex with creative ideas during the recession, you’ll need to rely on your team to shape and meet these challenges. Building up cross-training sessions with your staff can help achieve a lot, and multiple skills can buildup. As a matter of fact, investing in employees helps them feel more connected, and they’ll be willing to go the extra mile when they’re asked to.
>> Related Article: 10 Ways to Develop Your Employees
A pre work saves you from emergency hustles. Some ideas include appraising assets you can use as collateral, improving your business credits, or renegotiating extended payment terms on existing loans. Do your work on asset-based financing such as factoring, accounts receivable financing, and purchase order financing – especially if you’ve never introduced them before.
Take stock of the number of employees and their skills to ensure that they align with what your agency/business may need during a recession. Be ready to make adjustments, so the employees work efficiently and are offered an environment that maximizes their skills.
Businesses aren’t hard to handle, but they surely require strategies and good skills. Moreover, businesses can remain profitable despite an economic downturn with good recession-proof planning and innovative revenue-preservation strategies. Make sure that your business is low debt and high cash reserve with a focus on customer service.
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