Note: Listen to this post instead using the audio player below, and consider subscribing on your favorite podcast player!
Economic recessions are an inevitable reality of business, and destroy those who are unprepared.
This is especially true for small businesses, and even more so for first-time entrepreneurs who have never witnessed an economic recession from the perspective of a business owner.
See, as entrepreneurs, we tend to be risk-takers. We make decisions that lead to quick growth of our companies, and sometimes go a bit too far. We bank on the good times continuing, our carefully thought-out plans succeeding, and a bright and prosperous future.
Unfortunately, we may not factor in the hiccups we’re bound to face along the way.
In this article, I want to lay out some steps you can take right now to reduce your risk of collapse during even a very tough economic recession, and ensure that your company can continue thriving even during the worst of economies.
This isn’t to say that I believe a recession is about to strike, but this topic is too important to ignore.
Let’s get into it!
1. Get Your Cash Flow Issues Sorted Out Right Now
Many expenses tend to remain relatively constant whether the economy is expanding or contracting.
Income does not.
Revenue almost always goes down as people become more fearful, lose their jobs, and otherwise decide to hold onto their money.
If your company’s revenue is roughly equal to (or higher) than its expenses, and you don’t have cash reserves to cushion you until revenue recovers, you’re in trouble.
Economic recessions can last for over a year, and the effects of them may last much longer. Although the Great Recession of 2008 lasted a full 18 months, some economists believe we are still being affected by it in minor ways. Even the fact that worker skills may diminish while they are out of jobs for years at a time affects our economy for years into the future.
2. Look For Opportunities To Lower Your Overhead Costs
This ties closely in with number one, but companies with high overhead are particularly prone to hardships during recession periods.
Again, even if you cut unnecessary expenses, you need to be able to pay your bills. The smaller your monthly payments are, the more room you’ll have for revenue to drop without having to worry.
Conduct a full audit of your books, and question whether or not certain expenses are strictly necessary. Over time, it is easy to accumulate monthly expenses that you’re not getting any real benefit from – trials that you forgot to cancel, software you no longer use, and services that you could live without.
These are only a few examples, but almost everyone could cut expenses somewhere without even realizing that the product or service is gone.
3. Handle Your Debt
Now is the time to analyze your debt in detail, and decide your best course of action going forward.
Some questions to ask yourself include…
- Are there any loans that are worth paying off right now?
- What alternative sources of lending are available to me right now? Should I secure a deal with these lenders in advance?
- Should I look to refinance existing loans right now?
Remember, banks and other lenders do not want your business to go under. Like you, their goal is to make the most amount of money possible with the least amount of risk, and they’d prefer you stay alive long enough to repay all of your debts to them.
Debt is not fun to think about, but it’s easy for it to swallow you if you do not pay attention to it.
4. Unify Your Team
Your employees aren’t oblivious to the impact recessions can have not only on your company, but on them personally as well.
Trying to mask reality from them and keeping them in the dark will only cause anxiety among your team, and lower productivity.
After all, people care a lot less about their jobs when they aren’t sure if they’ll still be working for you next year.
Ideally in a recession, you won’t have to let anybody go. Of course, this may be a reality of the situation.
What’s most important is that you use the challenges facing your company as an opportunity to unify your team, build your company culture, and instill a powerful and positive mindset within your workforce.
Explain to your team that despite the tough challenges that will be faced ahead, you believe in them and you know that everyone can push through it. Explain your intentions to keep everybody on board and lay out a plan to not only make it through the recession, but to continue to thrive throughout it.
In times like these, a strong company culture and a sense of belief among team members can be extremely powerful – and in many cases, has helped companies come out of recessions even better than they were before.
This is part of the reason why recessions can be a great opportunity to steal market share from competitors – while they are busy falling apart, you are seizing every opportunity to expand.
5. If Business Is Slow, Use This Time To Grow
If business is slow and you aren’t able to fill time to the same extent you were before, capitalize on this.
Start pursuing things that you weren’t able to try out before. Test out new systems and processes. Try out new programs. Invest in education and specialized training.
Many of these things can be done without having to spend a lot of money, and will allow you to continue increasing the value that you and your employees can offer to the company, both throughout the recession and after.
What’s most important is that resources are not being wasted – and that includes everybody’s time.
Additionally, now may be a good time to scout for top talent that may have been let go at other companies. If you’re able to do so, consider using this opportunity to bring in new staff.
6. Build A Brand Now
Having a strong brand, with a loyal customer base is one of the most effective ways to insulate your company from recessions.
With a strong brand in place, it doesn’t matter that you may be more expensive than your competitors.
People buy based on perceived value, not price – and you should never be competing on price anyway.
When you become known for something – be it the exceptional quality of your products, your personality, your amazing customer service, your core values – people remember you and seek your company out regardless of what’s going on in the world.
That’s pretty powerful.
Not only should you begin your branding campaign now, but marketing shouldn’t be something you cut as the economy starts to slow down – in fact, there can be a lot of benefits of scaling up marketing if you’re able to do so.
That being said, this isn’t always possible, and it may be a good idea to put more resources right now into cheaper marketing channels, with a longer-shelf life.
Some examples of these would be social media marketing, running influencer marketing campaigns, or one of my personal favorites – blogging!
Blogging in particular is wonderful because the articles you put out will continue to drive revenue for your company both in the short-term, but also years into the future. Every new article you publish on your website will act as another entrance door to your brand, boost relations with your target customers, and help drive attention to whatever offer you’re promoting at any given moment.
Whether the economy is expanding or contracting, consumers in your target market will be discovering you for the first time. You’ll build relationships with these people over time as they continue to gain value from your content, and with a proper system in place, your blog will regularly funnel people towards sales.
It’s extremely powerful, and perfect for recession-proofing your company.
Although it’s not pleasant to think about the difficult times ahead, the fact that you’ve read this article to the end shows that you’re on the right path.
Many entrepreneurs fail to factor in recessions at all, and even fewer actively take steps to protect themselves from one.
I hope that this article has given you some ideas to help you protect your business from recessions. With the right strategy in place, I have confidence that you’ll find ways not only to minimize the impact, but even thrive during the difficult economic times.
I’d love to hear how you’re preparing for recessions right now, and taking steps to secure your business going forward. Even if a recession is years away, reducing your risk in advance is certainly a smart choice.
To your success,
– James McAllister
Review the main points of this article in the SlideShare below. Feel free to embed this on your site, use it in your organization, and share it with others! All I ask is that you give credit! (Download links are available from SlideShare’s website, which you can access by clicking the LinkedIn icon)