How To Prepare Your Business Against a Recession
What to do in preparation for a recession; In the previous 3 years, COVID has disrupted businesses across the globe. Supply chain problems have never been as much as they are these days. And the world that we’re left with, is still busy picking up the broken pieces of economies.
The world is facing a global recession. Businesses are having a difficult time and for most businesses, even their survival is in question now.
Here we’ll be going over a few tips that can help you prepare for the upcoming recession. However, before moving on to the tips, you must first understand what a recession is and how you can identify it.
The Definition of a Recession
A recession is an extended period of time when you can observe an economic decline in a country. If these drops in economic activity are observed all over the world (amongst interconnected economies), then this event is known as a global recession. Simply put, a decrease in global output refers to a global recession.
A country’s output and a weakened economic state, where trade decreases, people’s purchasing power decreases, and a country’s output also drop, these are a few other indicators for identifying a recession.
According to experts, there are various indicators that can help identify a global recession. A few major indicators of the global recession are, a decrease in per capita income and GDP (gross domestic product of a country or countries).
The effects of a global recession on different countries may vary due to their connection and dependence on the global economy.
Now, let’s move on to some tips that can help you prepare your business for a recession:
Tips to Prepare Your Business Against a Recession
1– Cashflow is King
One of the major steps you can take in the right direction to prepare your business for a recession is to maintain a positive cash flow in your business. You must work on building and implementing strategies that allow your business to have more cash inflow as compared to outflow.
Various strategies can come in handy for this such as considering discounted selling prices in return for upfront payments from clients, increasing your prices (this may work as a double-edged sword in some cases), offering bundled services or products and focus on receiving deposits for big projects.
eCommerce businesses can also consider offering buy now, pay later solutions so customers can easily pay for products while purchasing power goes down.
2– Focus on increasing your income
An increase in a business’s income is not something that is “nice to have” in fact, it’s a “must have” when it comes to survival of your business during a recession.
You must constantly look for creative ways and work on strategies that can help in supplementing your business’s income levels.
The best way to do that is to work on acquiring new customers/clients. This requires you to constantly increase your marketing/advertising, business development and sales efforts.
That said, increasing your revenues or income doesn’t mean that you should divert your focus on creating new revenue sources. You must focus on increasing your income by keeping your focus strictly on the one business that has proven to be profitable for your business in the past as well.
3– Work on Building Cash Reserves
Reserves hold critical importance to upkeep the health of the organization’s budget. Therefore, building out a cash reserve is the crucial step in preparing your business for recession. It helps in providing your business with a cushion.
To build cash reserves, it is essential to have good relationships with lenders that can provide support and assist in overcoming any economic turbulence. One good way of doing this is through establishing creditworthiness — making sure all loans and payments are paid to the creditors on time. Once you have a good credit score, it is time to push for longer payment terms and even larger lines of credit.
4– Cut Down on Unnecessary Expenses
You must categorize your business expenses in two types, “must-have expenses” and “nice to have expenses”. Your “must-have expenses” are the ones that are critical for your business to operate and generate revenue.
On the other hand, “nice to have expenses” are those expenses that can help your business do better but they are not crucial for your business’s survival.
Your focus should be on sustainability rather than sudden spikes in your revenue streams. This will help you in cutting down on unnecessary expenses.
5– Focus on Building Relationships with Customers
Your customers are the source of revenue, and building customer relationships is the only way to keep your business running until the economic turmoil is weathered. Customer relations can be strengthened in two ways: constant support and excellent services. Your strategy should consider both aspects of customer relations.
Not just that, advertising through difficult times showcase your organization as a true leader, giving your customers the confidence to do business with you. Create customer profiles, choose the most suitable among them and reward them with personalized promotions and discounts. Doing this is crucial in keeping your business going through a recession.
6– Minimize Payroll Expenses through Staff Augmentation
Your employees are your biggest asset. However, finding the right fit for a job is troublesome – not to mention costly.
With the economy in a downward spiral situation, staff augmentation is the best option for your business.
Not only does staff augmentation help you integrate the right person into your teams, it’s also a cost-effective way to increase your productivity.
Moreover, it minimizes financial stress and offers enhanced flexibility for companies because using staff augmentation services allows your company to use human resources without being bound by an employment contract with the augmented staff. This helps a company to stay aloof from all the hassles related to compensation and benefits.
All the tips mentioned above can help you do wonders when it comes to preparing your business for a recession. However, what you should understand is that preparing your business for a recession is not just something that you can achieve through a couple of tips alone.
Being prepared for a recession means that you need to have a mindset that allows you to see through the daily operations and see the bigger picture.
If you have made it a regular practice for your business to work on sustainability, building strong relationships with your clients/customers, hiring human resources only when you absolutely need them and when you know that you won’t have to let them go after completing a project and all other such practices that focus on the short-term objectives rather than your business’s long-term goals; chances are that your business will have no problems in surviving the upcoming recession.