In 2008, the world experienced a ‘once in a lifetime’ recession. Now, an unprecedented global pandemic has caused another.
Economists predict that even with businesses around the country starting to open again, it will still be a long time before America’s economy fully recovers. These experts expect growth of only around 0.4% this year, down from 1.2%, which will affect both employers and their employees. While some businesses are waiting for the pandemic to end so that they can bring back staff, others plan to close or have already closed their doors for good.
The NBER has announced that this recession started in February, as the country’s most prolonged period of recent economic growth ended. Many businesses have already felt its effects. Even if you have a thriving business, you should still look for ways to prepare as the recession’s effects worsen.
While most business owners find it challenging to make their businesses recession-proof, you can do some things to help lessen the impact of the recession on yours. Rather than letting a recession sink your business, planning ahead can mean you not only survive but prosper during this time.
Keep an Emergency Reserve or Account
Having an emergency fund that can cover you for three to six months could mean the difference between keeping your business and losing it in a recession. Keep this money separate from the rest of your funds and add to it as much as you can when business is going well.
However, you shouldn’t use this money to cover regular expenses. Instead, use it to fund new marketing campaigns, find ways to diversify your business, or buy stock that unprepared companies sell cheaply.
As the market changes, different opportunities will open, and creating a flexible business will allow you to flourish. Without a reserve fund to tap into, you may find that your current business model doesn’t generate enough revenue.
Don’t Stock Too Much
During a recession, most people tighten their purse strings. Fewer buyers mean that money tied up in stock becomes difficult to liquidate, as people won’t show as much immediate interest in your products.
To stay prepared for a recession, limit the amount of stock that you keep on hand. When possible, consider producing stock on demand rather than storing it and waiting to sell. The less money you spend on stock, the less risk you take.
Make a Strategy to Deal with Problem Clients
Almost all businesses have to deal with problem clients at some point. These clients usually pay irregularly or late and require more effort when it comes to communication. In times of economic growth, you may want to keep them on, but during a recession, they can drag your business down.
Recessions offer you an opportunity to look at and amend your business practices. Corporate clients may pay more slowly, so you should insist on receiving payment before you deliver their products. If you have unprofitable clients or clients who underpay, but you have kept contact, hoping that they will one day become assets, you may decide to drop them during a recession.
Cut Unnecessary Expenses
Reducing expenses can benefit all businesses, even outside of a recession. The less money you spend, the more profit you’ll make. This concept becomes even more important during economic downturns.
You should reassess your business policies around travel and office supplies and look into subleasing any unused office space to boost profit. You may also want to look at the services or products you currently provide.
Part of reducing expenses means cutting back on passion projects or areas that only make lower sales. Making more careful purchasing decisions will help you to focus on selling more of your most popular items.
Pay Off Existing Loans as Soon as Possible and Don’t Go for More
You should always try to pay off loans as soon as possible, and doing so becomes even more vital during a recession. As your revenue falls and uncertainty looms, lenders will be more eager than ever to receive payments. If you fail to meet your commitments, it could affect your business’s future.
While interest rates often fall during recessions, you should avoid taking on any new loans. This drop happens for a reason. Banks and savvy investors understand the risks of borrowing money in a recession. Taking on new loans to support your business during a recession could result in an inability to pay them back, leading to increased debt if your business struggles.
Explore Better Business Opportunities and Ideas
Recessions hit luxury industries the hardest. If you run a business in this industry, part of planning for a recession means looking into ways that you can move your business model into selling necessities. Selling necessities doesn’t necessarily mean changing your product, but instead could be a case of repositioning yourself to meet customer demand.
Look for ways that you could:
- Market your products as needs rather than wants
- Adjust your audience to one that has insulation during a recession
- Think of ways to create budget versions of your products
How a Proactive Approach Helps Businesses Survive Through Challenging Times
Benefits of Planning Beforehand
Planning the best way to weather a recession before it hits determines any business’s survival. While other businesses fail due to a lack of preparation, those who plan for unforeseen circumstances usually find themselves in a better position. Anticipating the worst can help you get through challenging times with less stress when it comes to your bottom line.
Those Who Survive Have More Chances to Thrive in the Future
Businesses that survive recessions using these tips will put themselves in a better position once the economy recovers. By diversifying their products and audiences, they will reach a broader market and continue to make sales. They will also find themselves operating with reduced competition, as the recession will force many businesses to close if they failed to prepare.
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