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How to Recession-Proof Your Small Business

Written by on April 26, 2021

It’s a matter of when — not if.

Yes, I’m talking about a recession.

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If there’s anything businesses should have learned in the past year, it’s that a recession can happen at any time. And it can be caused by anything.

Another lesson learned is a simple one — small businesses get hit the hardest.

That’s why, if you’re a small business, you must know how to recession-proof your small business.

What is a recession?

A recession used to be defined as two consecutive quarters of decreased economic activity as reflected by the GDP and other monthly indicators. 

According to the National Bureau of Economic Research (NBER), which officially declares recessions, the definition has changed.

So what is a recession?

A recession is now defined as a significant decline in economic activity spread across the economy, lasting more than a few months. Indicators include:

  • GDP 
  • Real income 
  • Employment
  • Industrial production
  • Wholesale-retail sales 

No matter the cause or duration, a recession is not something to be trifled with. And businesses that survive these economic storms have one thing in common — they recession-proof their businesses.

A study by Bain revealed that companies that deploy strategies to survive in a recession drastically outperform their peers. That’s both in the recession and after the recession.

8 Ways to recession-proof your small business

So how do you become one of the businesses that come out of recession in one piece? 

Particularly as a small business, it may not be that easy. Here are seven ways you can recession-proof your small business.

1.Track and protect your cash flow

One of the most significant impacts of a recession on a small business is the slowing of your cash flow.

And as you know, when cashflow starts slowing down, all operations are also affected.

That’s why one of the first steps to recession-proofing your small business is to track and protect your cash flow. One of the best ways to do this is to use effective invoicing software. It makes it easy to stay organized and helps streamline the follow-up process on customers who delay paying.

Be proactive in ensuring that your cash flow doesn’t dwindle much. Sure, that can never be guaranteed, but here are a few things to help you do so:

Develop a robust customer retention strategy

One of the primary reasons cash flow is affected in a recession is the loss of customers. That’s why you must develop a robust customer retention strategy in good times. It will help you build strong relationships with your customers, increasing the chances of them continuing doing business with you even in tough times.

Source

Another benefit of driving customer retention is that it’s a great way of generating recurring sales without incurring any extra costs. 

Improve your inventory management

One simple way to protect your cash flow is to eliminate waste. And this can be done by proper inventory management. Try and reduce your inventory costs by: 

  • Finding a cheaper supplier or shipping partner
  • Cutting down on warehousing costs by dropshipping (if possible) 

By ensuring that your business enjoys a steady stream of revenue and reducing expenditure, your cash flow is protected. 

2. Streamline your processes

Recession-proofing your small business is not just about keeping the cash flowing.

It’s also about looking internally and looking at how you can streamline your processes. This will help you find where you’re losing money. It can also help you develop techniques that help you reduce your costs and thus increase your profitability.

For example, you could take advantage of technology like contract management software to ensure that all contracts are handled efficiently, rather than managing your contracts manually. 

Another example is invoice management. Most small businesses lose a lot of money because of using flawed invoicing processes. These lead to some clients not being followed up and suppliers not being paid on time. Of course, both ends of the spectrum can lead to poor cash flow, which will reduce the chances of your business surviving the recession.

Each business has a different set of processes to get things done depending on the business model. Take the time to every step of every system in your business to look for inefficiencies and eliminate them. Not only will this help you save money, but it will give you an edge over the competition. 

3. Maintain a good credit score

Loans are one way small businesses weather the storm of recession. Let’s face it, even when business is slow, you still need to take care of your overheads and keep the business running. At times you may need to take out a small business loan to keep your business afloat.

This is where a good credit score comes in really handy. It makes lenders trust you and thus increases your chances of securing the cash you need to keep your business going.

It’s no secret that lenders tighten their lending standards during a recession. They only want to deal with businesses that they’re sure will honor the contract’s repayment terms. Having a bad credit score will reduce the chances of you getting financial assistance during such times.

Talking about getting financial assistance, don’t wait until you’re in the red to do so. Keep a careful eye on your financials and anticipate when you’ll likely run out of cash. Reach out to your bank or lending institution and get the funding before you run out. This will help ensure that your operations are not disrupted.

4. Don’t cut back on your marketing

One of the biggest mistakes many businesses make in times of recession is to cut back on marketing. 

Don’t make that same mistake.

People still need your products/services in a recession, so let them know you can still supply them. Another reason to keep on marketing in a recession is that your competitors will probably cut their marketing budgets. This will allow you to be more visible. As a result, when the recession is over, it’s your brand that your target audience will think of first when they need the solution you provide.

The trick to marketing in a recession is to do it right. Be sensitive to the current emotional atmosphere and use language and messaging that’s appropriate.

Also, make sure to use the right marketing channels. Focus on marketing channels that are affordable but still have an impact. Examples include:

  • Get a freelance SEO to boost your online visibility.
  • Leverage social media marketing to reach your audience and for customer support.
  • Use content marketing to engage, attract, and convert new leads.
  • Host webinars (some options) to help your clients navigate the stormy times.

Be agile in moving away from marketing channels and strategies that aren’t effective. For example, out-of-home (OOH) advertising is not effective in a pandemic induced recession. 

Speaking of marketing channels, one of your most effective ones in a recession is word of mouth marketing (WOMM). That’s why you must build strong relationships with your customers. Encourage them to be your brand ambassadors. After all, research shows that people trust recommendations from family and friends more than from brands.

5. Build multiple revenue streams

Another way to recession-proof your small business is to build multiple streams of income. 

Easy and cost-effective methods of adding more revenue streams include:

  • Incorporate affiliate marketing
  • Add digital or physical products to your current offerings
  • Include a subscription model, 
  • Offer consulting services 

These, and more, are great ways to ensure that your business is still running despite the challenging economic climate. 

The key to successfully adding other revenue streams lies in innovation. You must be creative in the way you come up with new business ideas that will work. More than that, you must be agile. If you take too long to implement your ideas, someone else will beat you to it.

6. Recession-proof your business by cutting down expenses

The biggest reason businesses sink in times of recession is that they still need to continue taking care of expenses associated with running the business. With income dwindling, this leads to the business having a negative cash flow — more money going out than is coming in.

The best way to mitigate this is to try and eliminate as many overheads as possible. 

For example:

  • Cut down on office space by embracing remote work.
  • Reduce staffing expenses by outsourcing wherever possible.
  • Evaluate your technology needs — cut down on what you don’t use.

Surviving a recession may call for you to make some tough decisions regarding cutting down expenses. But for your business to be recession-proof, you must get rid of anything that constitutes excess baggage. It will only drain your time, energy, and resources.

7. Create a pivoting plan 

When the economy takes a dip, spending appetites change. Your customers will adapt their budgets to prioritize their spending on essentials.  

That’s why you must anticipate this and create a pivoting plan.

Pivoting means changing your model of business or the product you offer. This can be slight changes or complete overhauls of your business. Before you pivot, you must sit down and strategically plan your best route of action. You could base your pivoting strategy on:

  • Turning a feature of your product into a standalone product. This results in a simpler and usually more affordable product offering.
  • Targeting a new market by positioning yourself in a new vertical
  • Shifting to a completely different product offering
  • Leveraging technology to change the way you deliver your products/services
  • Taking your business online if you’ve been focusing on brick-and-mortar operations 

To pivot successfully, you’ll need to identify gaps in the market that you can easily fill. You’ll also need to know what your customers are willing to spend their money on in a recession. This will help you develop a pivoting strategy that will help you continue thriving despite the harsh economic climate. 

8. Outdo your competition

Not every business in your industry will survive the recession. But make sure yours does. And one of the best ways to do that is to outdo your competition.

Here are two ways to make sure that happens:

Offer exceptional customer service

Recessions don’t just affect businesses. 

They also affect your customers. 

That’s why you must be more empathetic to your customers in such times. In short, offer exceptional customer service that shows that you care more about meeting their needs than boosting your bottom line.

The result is that not only will they become loyal, but they’ll also become your brand ambassadors. They’ll gladly post reviews on any platform you ask them to, and they’ll recommend you to their network.

Redefine your value proposition

Another way to outdo your competition is to redefine your value proposition. Remember, people change their economic values in a recession. Redefine your value proposition to align with what your target audience (or even a new audience) needs in that particular season. This will ensure that your sales funnel continues to bring in leads when your competitors struggle to do so.

Recession-proofing your small business — Be proactive, not reactive

One of the biggest mistakes small businesses make is that they fail to plan for recession well in time. The truth is that to best recession-proof your small business, you must start before the recession hits.

You must proactively put systems in place to ensure that your business is inherently recession-proof. Use these eight strategies to do just that, and your chances of succeeding in a recession will significantly increase.

Hanson Cheng is the founder of Freedom to Ascend. He empowers online entrepreneurs and business owners to 10x their businesses and become financially independent. You can connect with him here.

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