“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” (David Malpass, 2022)
There’s a good probability that if you are an entrepreneur and have been in business for more than a decade then at least one recession has directly affected you. Globally businesses have seen significant economic shocks, ranging from the dot-com disaster at the turn of the century to the housing-driven Great Recession of the late 2000s and the pandemic-induced recession of 2020. Although economic downturns affect everyone, businesses are more susceptible to their impacts. Especially small firms frequently lack a financial safety net that would enable them to withstand the effects of a recession, in contrast to big enterprises, many of which enjoy considerable earnings and preferential access to the financial and credit markets. During economic downturns, people tend to buy less and consume less, which lowers the demand for the goods and services provided by companies, particularly those in niche markets. Customers may also take longer to pay for goods and services, which would hurt such businesses’ cash flow.
So, the question you should be asking is whether your company is resilient enough to withstand the upcoming downturn? Even though a recession may be the last thing you want to think about, it’s crucial to evaluate your company critically to make sure it can withstand trying times.
The following steps will help minimize the effects of recession on your business:
1. Having adequate cash reserves
Capital resources are likely to be far less accessible when a recession occurs. Slower payment schedules are one of the first effects of recession on business. You’ll receive less money, or at least less frequently, if your clients or customers take longer to pay your invoices. Even if you don’t need financing right away, you’ll be considerably better off during a recession if you can acquire loans and accumulate cash reserves while your business is flourishing. It is ideal to obtain loans or accumulate cash reserves that can pay for crucial business needs for a three to six-month runway. By doing this, you should lessen the impact of the recession on your company, your employees, and your customers.
2. Optimize Your Staff
Having the proper-sized workforce is one of the best methods for your company to avoid a recession or stay profitable while one is occurring. Keep in touch with your employees at all times and let them know about any significant business actions that will affect their welfare. Spend money on specialized training to keep your employees flexible and responsive in case of a downturn.. In ideal circumstances, think about co-sourcing or outsourcing at least some of your personnel to provide your company with more flexibility when situations change.
3. Employee Satisfaction
Employee morale can easily suffer during a recession, but you should make sure you’re doing everything you can to assist them. Watch out for employee attrition and engagement levels. Keeping your staff motivated during a recession is crucial since they are your most valuable asset. Making your team satisfied can be accomplished without breaking the bank. Even if raises aren’t an option right now, employers can still provide benefits like flexible work schedules and the ability to work from home.
4. Loyalty of customers
During challenging times, your current customer base might be very helpful. Look for ways to keep them engaged because you’ve already spent money gaining these customers, who are also your staunchest advocates, advised Lyon. According to a KPMG survey, customers who are devoted to a brand are more inclined to recommend the business to friends and family (86%), and 66% are more likely to post favorable online reviews when they have had a pleasant experience.
While you’re building your financial reserves, whenever possible, take advantage of favorable conditions to pay off previous debts. It can be particularly challenging during a recession if a significant portion of your income must be used to pay debts as opposed to meeting operating expenses. Even if you can’t pay off all of your debts at once, start with the ones that are still due, need big lump sum payments, or are sizable enough to pose serious issues in a more difficult financial situation. In the event of a recession, lenders might be less inclined to refinance, so it’s better to minimize the liabilities rather than fall into a debt trap. However, it will be simpler for you to refinance these debts into loans with a longer duration or lower interest rates when the economy is booming.
The current economic challenges are likely to push the economy in the direction of a recession, and businesses are experiencing a level of uncertainty that is unprecedented. Therefore, having a smart recession proof business strategy should be a top concern right now for all business owners. Business owners can plan ahead for a potential recession and get ready for any outcome that may come up in the near future by implementing the strategies outlined above into practice. In conclusion, recession-proofing your business will enable you to gain an advantage over your competitors and may even enable you to compete on an equal footing with much larger organizations.
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