How to be successful in a recession
Decreased sales and lack of customer confidence can threaten all businesses, yet small businesses are particularly vulnerable to the effects of a recession. When running your business, it’s easy to overlook vital best practices that can help you get through difficult financial periods.
1. Secure Credit & Cash Reserves
When a recession hits, capital resources are likely to be a lot less available. One of the first effects of recession on business is a slower payment schedule. If your clients or customers take more time to pay your invoices, you’ll have less money coming in—or at least coming in less regularly. Even if you don’t need capital right now, if you can secure credit and build cash reserves while your business is doing well, you’ll be much better off during a recession. Ideally, secure credit or build cash reserves that cover essential business expenses for a runway of three to six months. Doing so should soften the blow of recession on your business and your clients.
2. Pay Off Debts
At the same time you’re building cash reserves, take advantage of favorable circumstances to pay off old debt when possible. If a large percentage of your income has to go toward paying off debts, rather than operational costs, it can be especially problematic during a recession. Even if you can’t pay off your debts completely, start with ones you have outstanding, ones that require large lump-sum payments, or debt that is sizable enough to cause significant problems in a more adverse financial climate. Once a recession hits, lenders may be less willing to refinance. When the economy is strong, however, it will be easier for you to refinance these debts into longer-term or lower interest loans.
3. Control Growth
We’ve all heard the saying You have to spend money to make money. There is some truth to that statement as you often have to invest in supplies, products, advertising, and other business expenses. But it is important to watch your costs and control your growth. One way to be successful during a recession is to be able to make changes quickly to keep your business afloat. If you spend every dollar that comes in, it makes it difficult to do so—especially during a recession when your income streams may slow. Whether the economy is in a downturn or not, try to not spend money on services or products unless you truly need them. Making smart investments in moderation that grow your customer base and increase profits will mitigate the effects of recession on your business.
4. Diversify Your Market
Broadening your market when the economy and business circumstances are favorable protects in the case of sharp downward spikes. Businesses with a diverse market tend to do well during a recession. Look for opportunities to expand your business beyond a single market segment, primary customer, or geographic region. When a large percentage of your income comes from one or two clients, it can be a recipe for disaster for your business during a recession. If just one of those clients leaves, goes out of business, or starts paying slowly, your company will be in trouble.
5. Reduce Merchant Services Expenses
Partnering with Electronic Payments is a great way to achieve this. But in the interim, avoid long term contracts and make sure that your pricing model is competitive. Negotiate your PCI fees and optimize your transaction types (hint – this means chipping as much as you can). Also increase your Address Verification service (AVS) and register for chargeback alerts. Lastly, offset the fees you pay to accept credit cards.
6. Optimize Your Workforce
One of the best ways for your business to prevent a recession, or continue to be successful during a recession, is to have the right-sized workforce. A peak performing organization has the right people in the right positions at the right time to complete what needs to get done, without significant surplus. Optimally, consider co-sourcing or outsourcing at least part of your workforce to give your business greater flexibility when circumstances change.
7. Solidify Key Customer Relationships
It’s a lot easier to forge long-term working relationships and contracts when circumstances are favorable. And such agreements may provide vital sustenance when times get tough. If you have forged strong relationships with clients, they will be less likely to jump ship when a recession hits. Instead, they will remain loyal to your business as long as you can work together to ensure you provide the services they need. Companies that continue to reach out to customers during a recession tend to lose less and recover quicker when the economy turns around. Solidifying these key relationships can actually have positive effects of recession on businesses.
Build A Recession Free Business
It’s never a bad time to plan a good defense for your business. While another economic downturn may or may not be on the immediate horizon, one sure thing is that sooner or later it will arrive. And the measures you take now may make all the difference to being successful in a recession.