Recessions happen more often than most people might think, and business owners are likely to experience several during their careers. The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity across the economy, seen as a decline in gross domestic product (GDP), real income, and wholesale-retail sales, among other economic indicators. Historically, there’s an average of one recession every six years in the United States that have lasted between two and eighteen months.
Not all businesses are impacted in the same way. While most experience some declining revenue growth, some may see accelerated growth and increased profitability, largely based on the type of product or service they sell and how they fulfill customers’ needs. Since essential products and services are still necessary and in demand during a recession, industries that provide them are considered defensive, or recession-proof, businesses.
Whether we are in a recession, approaching one, or may dodge the bullet this time, recessions are expected. So, it’s best to prepare in advance to not only survive, but even thrive through the next recession. Financial expert and author, Kristina Russo, suggests 27 strategies that have helped recession-proof many organizations over a broad range of industries. Consider how you might implement the ones that are applicable to yours.
- Create a cash flow plan – know your monthly sources and uses of cash and create a rolling cash flow forecast.
- Assess workforce needs and prepare employees to work efficiently and in ways that maximize their potential.
- Operate within your budget or operating plan – a best practice at all times since some recessions come without early warning signs.
- Build up employee skills and invest in employees to help them feel more connected to the business and more willing to go the extra mile when they are called on to do so.
- Track marketing key performance indicators (KPIs) to assure that campaigns are achieving their desired results.
- Beat the competition by collecting deep intel on customers before a recession hits and understanding – from the customer’s perspective – your product’s strengths and weaknesses compared to those of your competitors.
- Be patient and don’t forget the long-term perspective. Draw on the wisdom and experience you’ve gained riding out the ups and downs of many business cycles and implement levelheaded crisis management strategies.
- Know your liquidity options.
- Establish flexible client agreements to build customer loyalty.
- Create a business emergency fund that can cover up to six months of essential costs, including payroll, inventory, and utilities. Consider business continuity insurance as a different path to the same objective.
- Assess your organization’s risk tolerance.
- Pay down debt.
- Find ways to cut back operating expenses in ways that are invisible to customers. Small tweaks in several areas may result in significant expense reductions.
- Create an action plan before business slows down.
- Reduce overhead by trimming where you can. A slash-and-burn approach can cause more harm than good.
- Downsize inventory.
- Consider financing options before an emergency happens.
- Create multiple revenue Look at ways you can tap into new revenue streams using your current infrastructure without making a major investment.
- Modify your offering – the product itself, how it’s delivered, or how it’s priced – to make it more attractive to customers or cater to the way customer needs might change during an economic downturn.
- Invest time in client relationships – which makes sense in all economic climates – but understanding changing needs may put your business in a position to preserve revenue and even penetrate the market more deeply.
- Strategize by setting up a business such that it would continue to be successful if the company were sold to an outside entity, which may mean changing processes, delegating authority, and staff training – which frees up the business owner to pilot the ship rather than row the boat.
- Niche down even if your business may not be considered a recession-proof, essential business, by catering to a specific need that makes your business become essential to your customers.
- Invest in strategic partnerships that increase the perceived value of your product or service since value, quality, and durability tend to be key attributes customers seek out during hard times.
- Consider pivoting which means adjusting your path to meet customers where they are going by leveraging your current business in a different way.
- Diversity investments by considering shifting funds to existing and new investments with higher returns.
- Invest in adaptable technology that can help keep a business running during challenging times while also saving money, such as providing customers options for how they interact with your business. This is something you should research ahead of time.
- Since a key focus of recession-proofing is preserving revenue, it’s important to continue marketing and promotion efforts including loyalty campaigns geared toward recapturing past customers or increasing penetration with current customers to help keep the customer base healthy. Targeted promotions, especially those that align with customer pain points, can help increase market share if competitors go dark.
As with contingency or continuity planning in general, recession proofing a business must begin long before an economic downturn arrives. By the time business leaders know they’re in a recession, many may feel it’s too late to do anything more meaningful than slash costs – which can be damaging in the long term and hard to recover from. Take steps now to recession proof your business in a thoughtful, measured way to avoid potential errors, which are more likely to occur when managers are ill-prepared for a crisis.
Planning for downturns and uncertain times is an important part of doing business in general but is vital to staying on track with your exit plan. To look more in-depth at ways to recession-proof your business and learn what fellow business owners are doing, consider joining our Exit Planning Peer Advisory Board (PAB). Get in touch to learn more about the PAB or if you’d like to be a guest at our next meeting on September 21.