Every business owner wants a recession proof business. However, recessions happen and it’s unlikely your business will be able to completely avoid them. For example, in recent years, due to the COVID-19 pandemic and the war in Ukraine, there have been a couple of severe and “deep” recessions. Recessions cause serious setbacks in economic growth.
Economists/”Experts” are certain that a new recession is coming and the best thing you can do for now is to focus on preparing your business for the expected economic downturn. But that doesn’t have to be a nightmare. You can put your business in a position to thrive no matter what the economic climate may be.
Many businesses are looking for ways they can adjust their strategies and operations to weather the storm.
If you’re pulling your hair out trying to figure out how to stay afloat, we’ve got you covered. In this article, we’ll discuss the possible effects of a recession, and provide some tips for keeping your organization profitable during this difficult time.
First things first, what is a recession?
Despite the doom and gloom that we see on TV we are not always in a recession. These is a definition for “recession.” A recession is a period of time when the economy shrinks. According to the National Bureau of Economic Research (NBER), a recession is “a significant decline in economic activity that is spread across the economy and lasts more than a few months”. The NBER’s committee’s view is that “while each of the three criteria- depth, diffusion, and duration- needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indicators from another”.
Usually, a recession is also defined as two consecutive quarters of negative growth in gross domestic product (GDP). GDP measures the total value of all goods and services produced in an economy over a given period. They are often triggered by some event- such as a pandemic, a war, rising interest rates or sudden increase in gas prices to name a few- that causes consumers to cut back on spending.
These events can create a self-perpetuating cycle where companies stop hiring new workers because consumer demand falls off. This leads to consumers cutting back even more. When demand for goods and services peaks, an overabundance of these items can lead companies to produce less while downsizing, worsening the recession. When people lose their jobs, they lose purchasing power, and consumption continues to fall. It also means that your clients don’t want to spend any money, so you have less income.
As scary as recessions might seem, they are inevitable, because the economy goes in waves of ups and downs. Eventually, what goes up must come down and what’s down must come up.
Effects of a recession on businesses
A recession has major implication for businesses. Implications depend on the industry they operate in and what type of products or services they offer. There are some industries that will benefit from recessions. For example, industries supply the population with essentials, such as utilities, health care, and food, just to name a few.
Other industries, like retail, restaurants, travel and tourism, and real estate, will suffer during this time period because fewer people are able to afford them. This can lead to layoffs and closures or even cause companies to go out of business entirely.
When it comes to professional services, accounting firms are usually recession-proof and may even benefit, while advertising agencies will suffer the most.
It may seem like a bleak situation. That’s why the first thing you should do is make sure your business is recession-proof and prepared for the worst.
Although we know that no recession lasts forever, it can be hard to predict when it might end. The NBER says that “the time it takes for the economy to return to its previous peak level of activity might be quite extended”. So here are some things you can do to protect yourself and prepare your business for what’s coming.
Ways to recession proof your business
Cut Expansion and Preservation of Capital
One of the main strategies for businesses to become recession-proof is to minimize expenses where they can. This means cutting back on expansion plans until times improve as well as preserving capital for emergencies.
If you do decide to expand during a recession, do it slowly and cautiously. Rely on a detailed budget and plan that tracks your finances closely. Additionally, set aside some capital just in case there are further economic difficulties in the future.
Double down on marketing (particularly social media)
Professional services businesses may find themselves wondering what to do in this market. Should you cut back on marketing? Should you focus on social media instead? How can you get your message out there when clients are hesitant to spend money on anything right now?
The answer is: social media.
Social media offers an opportunity for professional services businesses to communicate with their target audiences in ways they haven’t before- and it’s also a way for people who need your services to find out about them.
Anselmo Ramos, the Founder and Creative Chairman at GUT managed to grow the independent ad agency by regularly posting on Linkedin during the pandemic. This goes to show that social media helps to build trust with potential customers and ride out the recession with ease.
Invest in Digital Strategies and Market Automation
Digital strategies such as short-term marketing campaigns and automated processes can help to create a recession-proof business. These digital solutions allow you to optimize your time and resources while also engaging customers on multiple platforms.
For example, you could use automation tools to plan email broadcasts ahead of time. At the same time create timely social media that draws people’s attention to your band.
Automations can also be used to convert customers into loyal followers who will stick with you long after the recession is over.
Assess Your Customer Base and Investment Portfolio
Assessing your customer base and investment portfolio can help you recognize areas that need improvement. Analyze your current customers and see if they’re largely local, international or online visitors.
By understanding where you get most of your sales, you can focus on strategies that target those strengths even further. This allows you to maximize your impact and tailor your sales operations towards higher efficiency.
Make sure to also check in on the securities you are invested in. They can provide clarity into how much risk you’re taking during uncertain economic times.
Standardize Practices Across the Business Structure
Standardizing operational practices across the business’s structure will ensure efficiency, quality and cost savings during a recession. Review multiple departments which call for change and implement a rationalized approach that makes use of existing resources. This could include:
- Applying single global standard for products and process
- Consolidating warehouses or optimizing product delivery processes
Measuring the results of these changes is also key to ensure your company is aware of what works and what could be improved further.
Put an Emergency Fund in Place and Utilize Cash Reserves Wisely
It’s necessary for businesses to plan ahead and have an emergency fund in place for different financial scenarios. Use this cash wisely.
Companies should also consider diversifying their sources of revenue and consolidating or renegotiating contracts with vendors to help alleviate costs
Offer free services to charities and other good causes
During a recession, it’s easy for businesses to focus on the bottom line. But that doesn’t mean you should forget about your reputation!
When times are tough, offering free services to charities and other good causes can be a great way to boost your business’s reputation. Not only will this help you connect with new customers and clients, but it will also show your community that you care.
Customers are more likely to be attracted to businesses that give back to their communities. During difficult economic times, people want to support businesses that demonstrate generosity and care towards others.
This is especially true for clients who have been affected by a recession. They may be looking for ways to support local businesses during hard times, and will appreciate any efforts your company makes toward contributing positively in the community.
And while this may not improve the company’s finances, it will certainly improve its reputation- and that’s worth a lot.
Be prepared
In the end, surviving a recession comes down to preparedness. If you’re already running a business, then you know you have to be ready for anything. But when it comes to the economy, there are steps you can take that will make your business more resilient and less likely to feel the effects of an economic downturn.
If there’s one thing we know about recessions is that they are unpredictable. So don’t wait until everything goes wrong before you start preparing yourself and your business for the worst-case-scenario. The sooner you start thinking about how to handle a downturn in economic activity and how to recession proof your business, the better off you’ll be when it actually happens.
