Some predict a recession, while others claim it has already begun. While a recession is a terrible phrase for any firm, it’s especially concerning for small enterprises, which may lack the financial cushioning of larger corporations. That’s why it’s critical to start planning now to recession-proof your company. As the economy worsens, it will be considerably more difficult for you to respond quickly and keep your firm afloat. Don’t be concerned. Here are five steps your small business may take to respond correctly during a downturn in the economy:
Focus on core competencies.
Your company excels at one thing in particular. It’s most likely your company’s main product or service, and it’s what will keep it afloat during a downturn. Reduce the number of goods and services you support to the ones that you know perform best, and don’t waste money on those that don’t. Find ways to produce numerous streams of money through promoting your core product or service, if at all possible. You can also boost your earnings by offering VIP and economy versions of a service you already provide. Consider a subscription option that includes additional perks and is automatically renewed.
Don’t stop marketing.
During a recession, it’s more crucial than ever to do everything you can to keep on customers’ minds. Regardless of your financial situation, set aside funds for marketing (including the cost of establishing a good internet presence) and do your best to keep in front of your clients. To get you started, here are a few suggestions:
- Send content-rich emails to your present customers on a regular basis.
- Make a convincing offer to past customers you haven’t heard from in a long time to get them back.
- Consider conducting social competitions, sales, or events, and post regularly on social media.
Be aware of the times in which you choose to engage with your audience. Maintain relevance in your messaging while keeping your company’s brand identity front and center. Also, avoid making a hard sell. Observe the crowd – during a recession, everyone is strapped for cash.
Protect your cash flow.
Recessions result in narrower profit margins, making it difficult to maintain a stable cash flow. So, for a moment, let’s get painfully genuine. If your cash flow stops, your company will most likely shut down. So, in order to survive a recession, you must plan ahead for measures to protect your cash flow. Here are a few possibilities:
- Reduce any unneeded expenditures. Examine your present expenditures. Is there anything in your business that you can go without for a period, such as services, subscriptions, or resources? If that’s the case, then do without and put that money toward business expenses.
- If possible, renegotiate vendor agreements to include more favorable conditions. Keep in mind that your vendors may be struggling as well. They’d probably prefer to renegotiate the terms of your contract rather than lose your business altogether. While the economy is shaky, see if they’re ready to offer you a lower price or more flexible payment terms.
- Make arrangements for financial help. Examine the possibility of obtaining a small company line of credit. To keep your firm afloat, apply for small business grants and small business loans. Small business loans like Kabbage might make the difference between survival and bankruptcy. Check out this list of the finest small business loans, and learn more about the Small Business Administration’s funding options.
Finally, make certain you are aware of your cash flow condition. You won’t know how to protect yourself unless you have a clear handle of the figures.
Invest in your existing customers.
Getting new clients is more expensive than keeping old ones. Even in the best of circumstances, this is true. People cut back on their purchasing during a recession, making it even more difficult to persuade a new customer to try your firm. As a result, investing in your existing consumers becomes even more critical. Now is the moment to establish genuine connections with your customers. Demonstrate that you are on their side. Treat them with deference and demonstrate that you appreciate their patronage with your actions.
Delegate and automate.
It’s time to start delegating if you’re planning for a recession. Determine which duties may be delegated to other employees and whether there are cost-effective automated solutions that can execute repetitive jobs faster than you or your team. Delegate the jobs that take the greatest time and provide the least financial return first. Try to get rid of any tasks that aren’t in your wheelhouse or that don’t bring in a lot of money. Your time is one of the most significant resources in your company as a leader. Make sure you save it for the projects that will have the most influence on the company’s bottom line.
It’s difficult to run a small business during a recession. A recession, on the other hand, does not have to be the end of the world. To adapt to the new reality, your small business will need to be agile and flexible. You can recession-proof your firm and emerge stronger on the other side if you plan ahead, execute properly, and stay focused.
What small businesses thrive during a downturn?
A number of vital services in the home restoration and repair business are recession-proof. With annual spending on home improvements in the United States exceeding $400 billion, it is an industry with a lot of room for growth.
Here are a few good business ideas that are still in demand even during economic downturns.
Plumbing: When a plumbing issue arises at home or at work, it is simply not possible to wait until a more financially secure time to have it repaired.
Auto Repair Services: Because many individuals rely on their vehicles and trucks to commute from home to work and cannot afford to be without one, auto technicians will be in high demand throughout a downturn.
What can a small business do to prepare for a downturn?
How Can Small Business Owners Prepare for a Downturn?
- Pay attention to your cash flow. Cash flow reigns supreme, especially during a downturn.
What business is recession-proof?
Healthcare, food, consumer staples, and basic transportation are examples of generally inelastic industries that can thrive during economic downturns. During a public health emergency, they may also benefit from being classified as critical industries.
A recession favours whom?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time purchasers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
What are the top five reasons for a company’s failure?
A storefront that turns into a new business every six months can be found in every area. Perhaps it began as a breakfast caf, then a karaoke bar, and finally a nail shop. These new little firms pop up and disappear nearly without anyone noticing.
These constantly changing shops might serve as a frightening reminder that tiny enterprises can come and go in an instant. Small businesses fail 20% of the time in their first year. By their fifth year, that figure has risen to 50%. While such figures are depressing, they don’t tell the whole story. Many small enterprises fail as a result of a few little blunders. The good news is that by learning, detecting, and correcting these common mistakes, you can prevent these reasons for business failure.
Starting With Too Much Debt
It may be necessary to go into debt to fund the start-up or purchase of your company. Few aspiring business owners have enough cash on hand to pay for a new venture out of pocket, so loans are a viable option.
However, if you don’t prioritize debt repayment and timely payments, expanding your business becomes increasingly difficult. Lack of money or cash flow is the top challenge for small business owners across all industries. Adding debt to the equation makes it even more difficult to turn a profit.
Many ambitious small business owners are looking for alternative finance alternatives to avoid starting off with too much debt to repay. One of these alternate approaches is 401(k) Business Financing, commonly known as Rollovers for Business Startups (ROBS). ROBS allows you to use your retirement funds to start or purchase a business without paying taxes or having to take a taxable payout. ROBS can also be used as a down payment on a small business loan, allowing you to save money while lowering your monthly payments.
With our Complete Guide to Small Business Financing, you can learn more about your funding alternatives.
No Business Plan
For a small business, a business strategy is essential. From financing to operations, your business plan will assist you in practically every element of your company. You can use your business plan as a guide and checklist throughout your small business journey if you start early. You’ll explore and comprehend essential areas for success with a sound company strategy.
Examples of Key Business Plan Sections
Your particular company strategy. What do you do for a living? How do you intend to profit from it? Are you a subscription-based SaaS product? Do you have a gym with a variety of membership options? Early on, determining your company model will assist you in determining how and when you will become profitable.
The demand for your goods or service in the market. Fourty-two percent of small businesses fail because their product or service isn’t needed. That is why it is critical to comprehend the necessity in order to avoid investing in a bad idea. A large element of determining whether or not your company will have a physical location is to do a locational study. Make certain you’ll be serving the community in which you’ve established yourself.
Examining the competition It’s critical to know your competitors if you’re a local brick and mortar firm. Are you considering launching a pasta restaurant? You should be aware that the neighborhood already has a thriving Italian restaurant. Then you can switch gears and open a Mexican restaurant to fill a void.
What do companies do during a downturn?
Because no two downturns are the same, marketers find themselves in uncharted territory throughout each one. However, we’ve uncovered patterns in consumer behavior and corporate strategy that either propel or hinder performance after monitoring the marketing successes and failures of hundreds of companies as they negotiated recessions from the 1970s onward. Companies must be aware of changing consumption habits in order to fine-tune their plans.
During recessions, consumers, understandably, set stricter priorities and cut back on their spending. Businesses often cut expenses, lower prices, and postpone new expenditures as sales begin to decline. Marketing budgets are frequently trimmed across the board, from communications to researchbut this is a mistake.
While cutting expenses is prudent, failing to sustain brands or assess core customers’ shifting needs might compromise long-term performance. Companies that scrutinize client needs, cut the marketing budget with a scalpel rather than a cleaver, and nimbly adapt strategies, methods, and product offers in response to shifting demand are more likely to thrive during and after a recession than others.
Why do small businesses keep surviving?
- Despite their dominance in terms of assets, employment, and turnover, only around 1% of enterprises are oligopolies, duopolies, or monopolies, according to market structure theory. In many industries, businesses are either monopolistically competitive or run under conditions that are close to perfect. The key issue is that these markets have relatively low entry barriers, which means that a huge number of enterprises operate at any given time, each with a small market share – hence the size of each individual business is likely to be’small’ in comparison to the total market size.
- As a result of new technology and the rise of the internet, start-up expenses and other obstacles to entrance have decreased, but hurdles to exit have increased, making markets more competitive. As a result, some entrepreneurs can adopt hit-and-run techniques to launch businesses only for the aim of making short-term (or head-start) profits. They then exit the market when profits decline due to new entrants. As a result, these businesses are likely to remain small in comparison to more established businesses.
- In general, businesses may not be able to take advantage of considerable economies of scale. This is especially true in the service sector, where labor is the most important aspect of production and technology cannot be used effectively.
- Small businesses are frequently simple to set up and do not require complicated rules and procedures to accomplish so.
- Profit maximization may not be the motivating factor behind all enterprises, including non-profits. As a result, staying small does not clash with the profit maximization goal.
- When monopsony power reigns (as it does with some international corporations), small suppliers’ growth opportunities are constrained because large purchasers can drive down supplier pricing. This restricts the amount of income and profit that may be made, preventing organic growth. This may explain why small suppliers to huge supermarket chains and other large retailers may operate at or near typical profit margins, limiting their ability to expand.
- Some markets, such as niche markets that supply specialized or customized services, may have limited development potential.
- Along with this, micro-marketing is becoming more popular, in which tiny groups of potential buyers are actively targeted with advertisements based on their previous or anticipated purchasing behavior.
- Small businesses can more easily exploit website and search engine users to learn about their shopping habits and target them via their website or emails thanks to the use of web tracking cookies.
- This has given rise to the concept of the long tail, in which new technology, low entry barriers, and micro-marketing let a significant number of tiny businesses survive even in marketplaces dominated by a few major businesses.
- Some small businesses can also survive with government assistance and state aid in the form of subsidies, grants, tax benefits and relief, and guarantees.
- Diseconomies of scale may emerge early for certain types of businesses, particularly those in the service sector, where substantial obstacles, such as communication, finance, and hiring and training labor, can arise as they grow.
- Subsistence farming (which is not strictly a business activity) and semi-subsistence farming (where farms sell up to 50% of their produce) are widely practiced around the world and employ a large number of people.
- Small businesses have been able to establish themselves in many less developed places of the world because to the advent of microfinance.
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.
Inventory levels must be closely managed. 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.
How do you get through a company disaster?
Determine what you’re most enthusiastic about and where you can make the biggest difference in your company.
The United Nations created 17 Sustainable Development Goals (SDGs) to aid in the resolution of the world’s most pressing issues. Which goal or objectives most appeal to you? Where can your company make the largest impact?
Narrowing your emphasis to just one or a few goals will help you become more focused and attract clients who share your passion.
Develop a giving back strategy.
I’ve been a member of 1 percent for the Planet since January in order to develop a long-term, strong relationship with a couple of charity partners who share my passion for nature and animals, including active engagement in volunteer programs.