Recessions can be very scary, at the least, and there’s no other way to say it. If you are an average working person, a recession can have a major effect on your day to day life. But if you're a business owner, this is doubly true. The good thing is, a recession doesn't have to mean the end of your business. It is actually possible to make your business recession-proof believe it or not. To be clear, that doesn't mean the recession won’t have some slightly troubling effects at all. It just means that at the very least, you have a much greater probability of being able to ride the recession out.
With that being said, we at MicroMentor want to provide you with some tips that will make your business recession-proof!
What is a recession and how does it influence businesses?
Before we get into exactly how to protect your business from a recession, let's very briefly take a look at what a recession is. For you as a business owner (or potential business owner), it is important for you to know so that you can stay on the lookout for certain indicators. That way, at the very least, a recession won’t seem like an undefeatable supervillain in a superhero movie starring your business.
A recession can be defined as a period of time when an economy is experiencing a noticeable decline, and usually at a drastic rate. During this time, economic activities, such as trade and the consumption of goods and services, are fairly low. Not to mention, the scariest part is that a recession has no projected time frame. It can last for 2 months. It can last for two years (or even longer). The worst recession of all time, The Great Depression, lasted from 1929 to 1939.
Ultimately during this time, consumers are spending less money which can lead to businesses being forced to lay off their employees. It's very possible that you've been on both ends of that equation yourself. To say the least, a recession is a thriving economy's worst nightmare.
Be Proactive …. Not Reactive
This is a phrase that you're going to see come up quite a bit throughout this article, and it’s some of the overall best business advice that we can offer. To be clear, this phrase is in reference to your ability to prepare for the future. If you are being proactive, meaning you are preparing for the things before they happen and trying to stay ahead of them, then overall you will be in a better position. Whereas if you are reacting to the changes in the economy or your business as they are happening, you risk fighting from behind. All in all it’s simple, stay ready to avoid having to get ready!
Be In A Position to Pivot
This tip comes with a slight disclaimer. Every business will have this option available to them depending on the type of market you're in. However, if there is one thing that the pandemic has taught us as both consumers and entrepreneurs, it's that sometimes you have to get creative to continue making a profit. This is where the idea of having to pivot comes in. Essentially, pivoting is just changing some aspect of your business, such as how you are selling your product/service, who it is accessible to, or maybe even changing some major aspects of your business goals. The overall point of this change is to best adapt to the circumstances at hand.
An example comes in the form of restaurants. As you've probably seen in your own area, many restaurants around the world we're forced to essentially become carry-out only or only offer curbside service. This meant that customers could not dine-in, and it places a huge dependency on technology to fulfill orders. As you can imagine, this is a solution that was done out of necessity. Of course it was not a deal for businesses, as this was a major loss for serving staff, but the purpose was to keep businesses from shutting down all together.
As stated initially, you may not be able to pivot in your particular business. However if you do have a business plan that has wiggle room for a back-up plan, we suggest writing it out and keeping it in your back pocket just in case.
Focus On What You Have as Opposed to What You Will Have
This tip is solely in reference to your customer base. Along with employees, customers are a business’s best asset, as they are the key to keeping your business recession-proof. A good point to make here is that when starting your business, the goal is to gain an audience. But something even more important is retention. Great, we have customers, but are they loyal customers? The customers that make frequent purchases, engage with you on social media, and subscribed to your social channels and emails. They are the jackpot when it comes to beating a recession.
We know that sounds counterintuitive. However, loyal customers can help guarantee long-term stability because they are also loyal to your brand. That's not to say that a business should never try to expand their customer base during a recession or any other time that sales may not be as frequent. Your loyal customers are just bound to be the ones that will keep you going. That's why it's important to be proactive as opposed to reactive. In other words it's a good policy to practice customer retention and customer care when things are on the up, so if a recession does hit, those customers will still be by your side.
Be In Control of Your Cash Flow
That may seem like an obvious tip right? Of course you keep track of your finances. The main idea here is that you don't want to wait until you're in a recession to know exactly how much cash your business has on hand. Again it's about being proactive not reactive.
According to a study by the U.S. Bank, 82% of businesses fail because of cash flow issues. Just imagine how much worse that can be during a recession. The last thing you would want during that time is for money to become an issue. Again, the goal is to stay ready to avoid having to get ready. Do your homework in advance so that when the time comes, you’re already on top of your numbers. It’s just like saving for a rainy day but on a potentially much larger scale.
Look Into Financing Before You Need It
This tip is similar to the previous one in that it should be done pre-recession. The biggest mistake that any company can make in a recession is the same point that we've been hammering throughout this article: being reactive as opposed to proactive.
That's where looking for financing ties in. When the economy is good and thriving it is the best time to get lower-cost financing for a bank loan. It's important to keep in mind that in a recession, money lenders and banks are going to be inundated with businesses who unfortunately did not prepare in advance and are now being reactive. So even if you don't need a loan, to finance or anything along those lines, on the outside it's always a good idea to at least foster relationships with banks and money lenders beforehand.
We really hope that you found these tips valuable. As you can imagine there are still a ton of things that go into making a business recession-proof. The best thing that you can do is take some time to think and plan for the future so that it does not come as a surprise if something happens. Make a back-up plan. Figure out who your loyal customers are and what’s keeping them there. Study your finances and figure out trends. As we have said many times … stay proactive, not reactive.