The global economy is on shaky ground – and while we’re not officially in a recession, experts agree that the specter of one is looming. A recent McKinsey survey revealed that 81% of CEOs believe that a recession is coming. If their predictions are correct, businesses can expect slow sales and shrinking profits in the near future.
Recessions usually happen after the economy peaks and begins to constrict. Periods of economic turmoil are officially declared “a recession” after two consecutive quarters of negative GDP growth. While the prospect of a recession might be alarming, they’re more common than many people think. Since World War II, the US has experienced a recession once every six years with each one lasting two to eighteen months.
As we hope for the best and prepare for the worst, there are things you can do to help recession-proof your business.
What is a recession-proof business?
Regardless of the state of the economy, people still need essentials like food, utilities, healthcare, home and car repairs, baby products, and childcare. While consumers may reign in their spending in the face of inflation and economic uncertainty, there’s still money to be made. Businesses serving the abovementioned needs generally do well during recessions, with some even seeing increased profits.
But what if, like most businesses, your company doesn’t serve these needs? Recessions are a part of business, so your best strategy is to plan ahead. Read to learn four tactics that can help you recession-proof your business.
4 Ways to Recession-Proof Your Business
There’s still time to safeguard your business before the current economic downturn becomes a full-blown recession. Whatever your industry, these four tactics can help you weather the storm that’s to come.
1. Treat your customers like gold, and look for ways to suit their changing needs
While an economic downturn isn’t necessarily a reason to panic, it doesn’t mean it’s “business as usual.” New customer acquisition is a tricky business in a poor economy, so customer retention becomes more important than ever! Now is the time to step up customer care and provide exceptional service – check out this article for 15 customer service KPIs you should be tracking to ensure you’re providing world-class service. Positive reviews and word-of-mouth referrals are worth their weight in gold, particularly in turbulent economic times. Read this article to find out 5 ways to get more reviews for your business, and consider offering referral incentives to your existing customers. While referrals can help, new customer acquisition can be difficult during lean times, so retaining as many of your current customers as possible is the best tactic to help ensure a bright future.
A poor economy is almost certain to affect your customers’ spending habits, so you must anticipate the resulting changes. Many customers will likely become more price-conscious, which means that savvy businesses will begin offering lower-priced options or incentives like discount codes or free shipping. To keep a pulse on your customers’ changing needs, consider doing surveys to assess their pain points – and respond accordingly. If you have a service-based business that’s prone to churn, survey customers after they’ve canceled to understand why. Perhaps it’s possible to scale back and offer a lower-priced option in a bid to keep more of your customers. You might have lower earnings in the short run, but you’ll have a better chance of staying afloat and retaining your customers while you wait for the recession to pass.
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2. Uncover new revenue streams
In order to survive in a bad economy, businesses have to earn what they can while minimizing their losses. Unfortunately, a single revenue stream might not be enough to get you through a recession, so look for ways to diversify your income. Are there untapped markets or audiences you could possibly target – for example, can you pivot your B2B sales to B2C or vice versa? Are there any new products or services you could launch that could appeal to a broader audience or the changing needs of your current customer base with limited investment on the company’s part? Are there new distribution channels you could explore? Regardless of how you do it, having multiple revenue streams is a smart strategy for making your business as recession proof as possible.
During the Covid lockdowns, many hair salons stayed afloat by offering custom hair color kits for their clients to use at home. This is the kind of creativity that can determine whether or not a business survives tough times. How can you retool your products to fulfill a need while addressing the current market conditions?
3. Cut expenses to the core
If you can’t earn money, the next best option is to save it! While skimping on customer-facing expenses can backfire, cutting operating expenses can make the difference between staying in business or closing up shop. If possible, pay off any high-interest debt – this can save thousands in interest while freeing up credit lines should you need them in the future. Next, look into easy ways to save money – this could mean changing to lower cost vendors (e.g., cleaning, telecom, office supplies), renegotiating contracts with current suppliers, or reducing employee perks (e.g., snacks and soft drinks). If that’s still not enough, look into things like travel and entertainment expenses and whether there’s anything you might be able to outsource for less money (e.g., to freelancers or external agencies). If you’re still headed for dire straits, look into more drastic measures like reducing staff or moving to a smaller office space with fewer amenities.
If you run an inventory-based business, a slowdown in sales could end up costing you money in storage fees, or leave you with obsolete products over the long haul. Managing this scenario is a delicate balance between liquidating inventory to free up capital and warehouse space while avoiding out-of-stock items, which could result in lost revenue. Ideally, the best approach is to decrease your inventory of low-margin and less-popular items while pushing your best-selling, high-margin products.
4. Get a grip on your finances and be proactive
If you don’t have an accurate snapshot of your company’s finances, you can’t expect to effectively recession-proof your business. In order to plan for the worst-case, you’ll need to understand key financial metrics like your company’s cash flow, profit margin, production costs, inventory, and sales. This will give you a solid understanding of your current financial standing.
During an economic downturn, forecasting becomes imperative, especially if you want to recession proof your business. This means forecasting both best- and worst-case scenarios as well as the in-between. Having an action plan for each of these eventualities is essential to not being caught off guard, which will improve your company’s chances of weathering the storm. Now is a good time to introduce a “pay as you go” policy for operational expenses, funding these costs from income generated from the same period vs. dipping into cash reserves. If your expenses are outpacing income, see point number 3 above and see if there’s any way to further reduce your operating costs.
Even the most careful businesses might need to borrow money to get them through the thick of a recession. Unfortunately, recessions are a financially vulnerable time, so creditors often raise their lending standards during these periods. Now is the time to prepare for the worst by building your company’s credit – use a corporate credit card, pay your invoices on time, and do all that you can to position your company as reliable, trustworthy, and a safe investment for creditors.
Recession-Proof Your Business with Real-Time Reports
With Plecto, you can schedule and generate automatic reports using real-time data to help you keep tabs on the most important metrics to recession proof your business. With a bird’s-eye view of what's going on financially, your company will have the best chance of withstanding whatever economic turbulence comes.
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