With the increasing number of headlines pointing to a potential recession, we’ve had several business owners ask us how they can protect their businesses. Based on the last recession, we know that freelancers, small businesses and startups are highly vulnerable in an economic decline, and once a recession is underway, there’s not much a business owner can do to mitigate its effects. So, it’s critical to think ahead and implement measures to recession-proof your business before a downturn strikes. Here are our thoughts on how you can prepare your business for the next recession.
Build a Cash Reserve
In a recession, you will likely experience a dip in sales. It’s helpful to have a cash reserve to take care of expenses when your sales can’t cover them. If your business is currently profitable, now is a good time to start building a cash reserve by setting aside some of your profit into a savings account. And overall, a good rule of thumb is to build up at least six months of cash reserves to give your business a cushion.
You can expect that finding financing for your business will be more challenging in an economic downturn. Lenders tend to have tighter credit standards, and investors tend to hold on to their cash to preserve their own financial cushion. Ahead of the downturn, use the current momentum of your business to secure financing on better terms so you have a bridge to get through it.
Track Cash Flow
It’s always important for you to keep track of cash flow, but you need to be extra diligent in a recession. If you haven’t already put in place a simple system for tracking and projecting the money coming in and out of the business on a weekly basis, now’s a good time to start. Use that cash flow system to look for ways to reduce costs or spread costs over a longer period to preserve cash without harming the business.
When times are lean, you might feel the pressure to cut off your marketing activities in order to save money. Don’t. You need to keep up the visibility with your current and potential customers. Instead, look at each of your marketing activities and what they are yielding for the time and money you are spending, and refocus your efforts only on the ones that give you the highest return on investment.
Connect with Customers
Get out and talk to your customers. Make sure you have a firm understanding of their needs, challenges, and buying patterns as the economy shifts. Use this data to identify additional ways to add value during the downturn, and adapt your products, services, and customer experience to meet those needs.
If you are running a small business or startup, workers are critical to your success. Make sure you take care of your team as the economy shifts. Set up the infrastructure and processes to allow your workers to perform at their best and feel like a valued member of the team. Also,as the recession hits, don’t be afraid to let them know what is going on and how it’s affecting the business, and engage them in thinking creatively about how to bolster the business model.
Cultivate a Support Network
Getting through a recession is bound to be a rollercoaster ride. It’s helpful to have a support network for your business who you can openly talk to about the challenges and call on for brainstorming and advice. During the downturn, a support group of likeminded business owners might be helpful to connectwith customer and partner opportunities that will boost your business.