How to recession-proof your business
According to the National Bureau of Economic Research (NBER), the U.S. has experienced 12 recessions since WW2. This fact proves that recessions are more common than most people realize, meaning business owners are likely to encounter several over the course of their careers. Therefore, it’s important to prepare businesses to survive and thrive through the next recession. Here are some recession-proof strategies for your company.
1. Create a cash flow plan
Running out of cash is always a top concern, especially during a recession. It’s important for business managers to handle current cash balances, monthly sources and uses of cash. Be sure to create a rolling cash flow forecast for the next quarter to serve as an early warning tool that alerts your management team about any variances.
2. Operate within your budget
The core of good business hygiene is to operate within your budget so that the company is in the best possible position if a recession hits. Having an operating plan is important at all times, especially since most recessions come without any economic early-warning signals.
3. Create an action plan before business slows down
It’s a good idea to do scenario planning and develop action plans before a crisis hits. This can help minimize errors or bad decisions made under the stress of the moment.
4. Build up employee skills
For your business to stay flexible, it’s important that employees are in prime shape to meet any challenges. A good tip is to build up their skills and cross-train your staff. Investing in employees can make them feel more connected to the business and they’ll be more inclined to go the extra mile when they are called to do so.
5. Assess your organization’s risk tolerance
Do a check on how much risk your business can handle, its risk attitude, and how much additional risk it could take on. Create a range of tolerance, along with metrics for measuring it. Have an accurate assessment of leaders, staff and your systems to determine how adaptable they are and how much risk they can absorb before cracking under pressure.
6. Create multiple revenue streams
This strategy requires some out-of-the-box thinking in order to capture new money without making a major investment. Some things to consider include extending your geographic footprint by selling online. Adding business-to-business (B2B) customers if you typically sell directly to consumers or vice versa. You can also think of ways to create a new product or service that you can make with what you have.
7. Find ways to cut back
Cutting back operating expenses can be a challenging task, whatever you decide to cut should be invisible to customers. When looking for ways to cut back, it’s helpful to start with the biggest costs. Look for small tweaks that can result in big expense reductions. Make sure to cut back on luxuries and costs, not the elements that keep you alive. For example, vanity marketing with dubious results such as a billboard with some symbolic placement or a magazine ad just for the sake of prestige is a good option to reduce costs. Before cutting anything, first, check where your customers are coming from. Be strategic about it, if you end up reducing your online presence chances are your business will never be found again, which will mean business suicide at the moment you need new customers the most.
8. Reduce paid ads and transfer those funds to higher ROI marketing
Paid Ads, like Social or Google Ads, create immediate results for a price. But long-term dependency on them is not scalable. As soon as you don’t have the budget to continue paying, your marketing and your business implode. In this scenario, businesses that prioritized Organic Search Marketing are the ones suited for survival because, in a moment of high need, they still receive customers even if they temporarily are unable to invest in marketing. Recessions are an excellent opportunity for those businesses who have invested in SEO as they can shop and acquire sinking competitors that only depended on paid ads. During a market crunch, customers become more selective, and Paid ads, usually provide more volume but less quality of customers.
9. Don’t skip nurture campaigns
A key focus of recession-proofing is preserving revenue, therefore it’s important to continue marketing efforts. Loyalty campaigns geared toward recapturing past customers can help keep the customer base healthy. Targeted promotions, especially those that align with customer pain points, can help increase market share if competitors go dark.
10. Be patient
Studies of businesses that have endured success weathering economic downturns show that their success is credited to wisdom and experience to patiently ride out the ups and downs of many business cycles. It’s important to note, though, that patience and complacency are not the same. Patience has prerequisites, such as following the advice from this list to position your business to have the foundational supports that enable patience.
Recession-proofing a business requires planning and action before and during an economic downturn. Understanding current results, as well as developing what-if scenarios is key to get through such a moment. Recession-proofing a business requires a balance of surgical cost-cutting, smart customer marketing, and strategic investment. Consider these tips to help your company survive during an economic slowdown.
