5 Recession-Resilient Strategies for Small Businesses
- Concentrate on your primary talents. Your customers’ businesses excel at something.
How do firms react to a downturn?
As sales revenues and profits drop, the manufacturer will reduce or stop hiring new staff altogether. The firm may stop buying new equipment, decrease research and development, and halt new product rollouts in order to reduce costs and improve the bottom line (a factor in the growth of revenue and market share). Marketing and advertising expenses may also be decreased. These cost-cutting initiatives will have an influence on other businesses, both large and small, that supply the items and services that the huge company need.
In a downturn, how do firms stay afloat?
Cash is essential for surviving a recession. When sales are down, operating expenses must usually be cut, which often means layoffs or furloughs. Who’s unpleasant, but the companies that act swiftly have the best chance of surviving.
Collections must be a top priority for businesses that offer trade credit. Salespeople will be clamoring to match competitors’ no-credit-check deals. In a recession, however, transporting product over the shipping dock without receiving payment is exceedingly risky. Providing services almost always necessitates paying the service company’s employees before receiving paymentand payment does not always arrive.
Inventories must be monitored closely. In a recession, a company’s need for product is significantly lower than in a boom, and the money stashed in inventory could be put to greater use. Inventory may be liquidated for pennies on the dollar in emergency situations, therefore it’s best to keep those dollars in the first place.
What steps can businesses take to mitigate the effects of a weakening economy?
- Adjacency Planning. Are there any? “Are there any “adjacent” industries that are natural extensions of the company’s main products or services? A warranty or expedited shipping service, for example, might be added to your existing product line.
- Extension Methodology. Extensions are concerned with the concept of the “extensive business.” Consider going beyond natural affinities to product or service extensions that could help the organization expand outside its primary business.
- Strategy for a New Channel. Consider forming alliances, collaborations, mergers and acquisitions, or even franchising your product to expand into other areas. Alliances and partnerships could be a less expensive approach to expand the business without having to invest in new production facilities or inventories.
3. OPM (Other People’s Money) is a term that refers to money that belongs to someone else.
A line of credit is an arrangement between a financial institutionusually a bankand a borrower to provide a specific amount of credit on demand. Many banks now have more money than borrowers, and only about 40% of the existing lines are being used. During a recession, many businesses close their doors for one reason: they run out of money. Even if you don’t need extra credit right now, consider raising your line of credit and establishing new credit facilities. You can do so later.
A modification in credit conditions from your vendors and consumers is another technique for enhancing your company’s cash flow, which is crucial in a downturn. For instance, if your competition pays their suppliers in 45 days and you pay in 30, you are wasting money. If your sales terms are too generous, on the other hand, you’ll have to finance cash demands that could be fulfilled by better invoicing and collection methods. Finally, check to see if your vendors are offering you the greatest prices.
4. Outsource everything (this isn’t a strategic decision).
You’re a heavy user of outsourced services already. You presumably don’t deliver your goods directly to your consumer, handle your own audits and taxes, or insure your company yourself. You may also choose to outsource some or all of your manufacturing to a foreign country. In a downturn, one of the most important strategies is to convert fixed costs to variable costs, which can be accomplished by outsourcing.
Consider outsourcing everything that isn’t critical to your company’s success. This can include HR assistance, accounting, manufacturing, transportation, and even your executive team. Is a full-time CFO or controller required, or would a “fractional” CFO or controller, shared with other businesses, suffice?
For small and mid-sized businesses, most HR responsibilities can and should be outsourced. A Professional Employee Organization (PEO) can assist you in processing payroll and providing greater benefits to your employees. Furthermore, by pooling with other businesses through a PEO, you can save a lot of money on benefits.
5. Recognize your worth
During the last recession, the government had to bail out almost every automotive company in the United States save one. Ford, on the other hand, anticipated the recession and sold and leased back its facilities, accumulating a cash reserve to weather the storm. Although owning real estate can be reassuring, if you are not a real estate company, consider reinvesting the funds in your real estate into the production and growth side of your company.
A sale-leaseback is a long-term transaction in which a bank or investor sells and leases back real estate or other fixed assets to a corporation. It’s more complicated than a loan and includes numerous accounting concerns, but you still have access to and control over the facilities, and you’re basically converting a non-liquid asset into a liquid asset, which is a critical decision in difficult times.
Although the storm clouds of a recession may be a long way off, being adequately prepared for adverse weather is easier than enduring a storm on a leaky ship.
What impact does a crisis have on business?
Unexpected circumstances can be damaging to a small firm. Fire, stock damage, crucial employee illness, or IT system failure can all make it difficult, if not impossible, to carry out your routine day-to-day operations.
What things sell well during a downturn?
- While some industries are more vulnerable to economic fluctuations, others tend to do well during downturns.
- However, no organization or industry is immune to a recession or economic downturn.
- During the COVID-19 epidemic, the consumer goods and alcoholic beverage sectors functioned admirably.
- During recessions and other calamities, such as a pandemic, consumer basics such as toothpaste, soap, and shampoo have consistent demand.
- Because their fundamental products are cheaper, discount businesses do exceptionally well during recessions.
What happens in a downturn?
- A recession is a period of economic contraction during which businesses experience lower demand and lose money.
- Companies begin laying off people in order to decrease costs and halt losses, resulting in rising unemployment rates.
- Re-employing individuals in new positions is a time-consuming and flexible process that faces certain specific problems due to the nature of labor markets and recessionary situations.
What impact does the economic downturn have on small businesses?
Because they don’t often have huge cash resources, many small enterprises function on a closely managed cash flow. Money comes in and goes out, and if a client payment is late, the entire cycle is jeopardized. Customers may put off purchases or payments longer than usual during a recession, frequently because they are waiting for their own income to arrive. This sets off a chain reaction of late payments from one vendor to the next, slowing down all parts of company. Because of the scarcity of credit, small firms are unable to borrow to overcome this.