Jocova Financial | May 22, 2020

HOW TO RECESSION-PROOF YOUR BUSINESS

INTRODUCTION

Business is tough and constantly changing. As business owners you need to be able to adapt and plan for uncertain times including an economic recession. There is no such thing as being too prepared and all businesses should be thinking long-term and what they should be doing to be ready for a market downturn even during a boom. Businesses that don’t look ahead and plan accordingly could see themselves out of business or have to take on substantial debt to keep the business afloat during a recession. With some simple strategies you can start to implement straightaway in your business, you can limit the effect a recession has on your business and be well prepared when the time comes. The following methods will help you to recession-proof your business.

  1. HAVE AN EMERGENCY FUND

When recession sets in, the economy always experiences a serious hit and every sector receives its own fair share of the degradation. Banks often are unwilling to give anyone loans that won’t fetch them higher interest due to increased risk. Friends and families are often impacted and cannot be relied upon for loans and private lending institutions are often harder on credit, charge high rates or want too much collateral.  This is why businesses should endeavor to have an emergency fund that will provide them with much needed cash during a recession. Business owners should look to build in a simple savings plan into their daily operations that is set aside for emergencies. For example, a business may consider setting aside 10% of their revenue into a savings account.

  1. HAVE DIVERSIFIED STREAMS OF REVENUE, OFFER NEW PRODUCTS AND SERVICES – GROW YOUR CUSTOMER BASE

Diversification of revenues stream is a crucial component for every business operation. If a company relies only on a few industries or customers there is a high tendency that this company might faulter. When there is a low circulation of money in an economy, most consumers are affected, for instance, this inadvertently affects the functioning of a business dependent on these customers.  So, to diversify, ensure to offer new products and services in order to extend your customer base that allows you earn more profit in varying related segments and customer bases and/or industries.

  1. KEEP INVENTORY LOW

Too much inventory-on-hand amplifies problems for businesses in time of a recession as it ties up precious cash. One of the reasons business owners should lessen inventory during a recession, is to redirect the overhead cost to other channels that will help foster its sales and growth. Adequate inventory management, such as Just-In-Time inventory management is a best practice that keeps inventory and the associated cash for that inventory limited. Focus on redeploying the cash to diversify revenue streams and customer base, marketing and sales efforts, expansion, and savings.

  1. MANAGE DEBTS AND EXPENSES; BE LEAN

Formulate a budget that guides the spending for a fiscal year. This budget makes it easier to moderate the debts and expenses incurred for that particular year and gives a guideline to follow married to expected cash flow. This is also a good model that helps you to be lean in regards to the amount of money you expend on the purchase of irrelevancies that won’t contribute to the structure of the business. Endeavor to spend less on things that are unnecessary for the business. To help recession-proof your business, avoid anything that is not necessary that will put the business in debt and restrict the business in the future. Should the need for something such as equipment arise, look to balance cash flow with the equipment requirement and the revenue it will generate for your business. Equipment financing and leasing are good options for this. For other smaller and short-term expenses a short-term business loan or line of credit could work as well.

  1. FORECAST & PLAN

Like budgeting, it is important to forecast and plan for the future needs of the business. You should map out where you want to go and how you are going to get there including what you need in terms of hiring, equipment, and resources. Even though business can be uncertain, having a playbook to guide your efforts gives a solid framework to ensure all the members of your team are on the same page; future goals, be lean, and managing the business accordingly. Should a recession period come to light, you are well prepared and know what you should be doing for your business in the near and long-term for continued success.

  1. ALWAYS BE MARKETING

Business owners often misconstrue the potentials attached to recession and this spurs them to restrain from marketing their business and associated expenses. This is a wrong misconception. During recessions, customers are nervous about spending money and spending it poorly. This is why they are in search of a business that can provide them with products and services that ensures value. Marketing educates potential customers about your various products and services. So therefore, if you have adopted the above methods to recession-proof your business, especially the creation of new products and services that will attract customers, it is important to always market your business to potential customers.

  1. CONSTANTLY EVALUATE

Evaluating the condition of your business is a key role for business owners. This is a stage where you try to examine the business for the total income and expenses, the state of the customer base, the cash flow, its rate of expansion and also its flexibility of its operation within the market. Therefore, business owners must constantly evaluate their company to get cues on how the business is actually functioning against budget, sales, planning, etc. vs. actual numbers and make any necessary adjustments. This is an ongoing process and depending on the business, can be reviewed, weekly, monthly or quarterly.

SUMMARY

Running a business and enduring a recession can be stressful. By implementing some simple tactics, you can increase the likelihood of continued success during economic downturns. Many of the tactics discussed, can also be considered best practices for many small businesses and it would be wise to see what can be implemented today to ensure success in the future.

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