Many business owners don’t realize that our economy has natural cycles of expansion and decline. For this reason, businesses would do well to prioritize being prepared year-round should the market take a turn for the worse. In the event of a financial downturn or a recession, circumstances can change suddenly and unexpectedly, leaving business owners wondering what to do next. Fortunately, maintaining some fundamentals as a business before a difficult situation emerges can make it much easier for owners to ride the natural waves of the economy. In this article, we’ll discuss some best practices on how to prepare for a recession.
One of the easiest ways you can get out ahead of any major dips in the market is to ensure that you have a clean set of books that are complete, accurate and easily accessible. Reviewing your files regularly will ensure that they are up-to-date and the insights they provide allow you to make informed decisions on pivots should a financial recession occur. If you don’t have your books in order, it can also delay getting funding and applying for necessary assistance. This is something that many businesses didn’t have on hand and ready when COVID-19 hit, and it delayed them from being able to apply for government assistance.
One of the fastest ways to fail as a business during a financial recession is to have clients who are also struggling. While it can be a great idea to start a niche business, you may be left with “all your eggs in one basket” making your business particularly vulnerable when times are lean. Making sure you have a diverse mix of clients will help you weather the financial storm.
If you are in the B2B space, your ideal client will have healthy profit margins and serve in a variety of industries to withstand financial downturns or recessions. If you are a B2C company, try to diversify your customer base so that you have recurring income from multiple avenues. Remember, not everyone will be equally impacted by a financial downturn.
Having a crystal-clear strategy or financial emergency plan in place is vital to recession-proofing your business. As rudimentary as this sounds, many companies go into a recession without a profitable business model. As a general rule, you are going to survive a recession much better if you are currently profitable and have a clear strategy already in place.
Another key consideration to help you prepare for a recession is to secure financing before one hits. You want to obtain credit when you don’t need it so that if things get tough, you already have it. As a profitable business owner, you may be thinking, “I don’t need a line of credit,” but that is actually the best time to secure one. If you wait until things get bad, your chances of getting funding decrease drastically.
As soon as a recession occurs, reach out to your entire client base right away and let them know that you are there to support them. Keep messaging upbeat and positive. Also, make sure to reiterate that your team is attentive to your client’s needs and share any support programs you may have in place. Something as simple as a reminder that everyone is in this together will help your clients to keep their business with you. Then, double down and assist your clients with the hard parts of navigating the recession. Do this for free whenever possible.
If you are wanting to go the extra mile, make a gesture of goodwill towards your customers by offering some level of support such as discounts, or additional complimentary services. This shows that you are in this with your clients, and it will position the business well, which helps to boost your customer loyalty.
After you’ve weathered the financial storm, don’t miss out on a key area of growth. When times are tough, it is a great learning moment and an even better time to conduct a thorough debrief. Identify key areas where you can make improvements, such as focusing on processes that can be streamlined. Don’t procrastinate. Take advantage of the opportunity to implement improvements while they are still fresh in your mind. This period of review is fundamental to strengthening your business.
If you pivoted your business strategy or service offerings in order to prepare for a recession, reevaluate to see if you need to revert to your pre-recession strategy. This is happening right now for a lot of companies weighing the debate between being remote versus an in-person team in the wake of the pandemic. Whenever possible, it is always prudent for business owners to err on the side of caution.
Take the steps that are outlined above, while the business is healthy and stable, don’t wait until things get tough financially. It may not be tomorrow, but there will be another recession. Often, business owners don’t want to think about hard times, but maintaining these fundamentals is healthy during good times and a life-saver during difficult times.
Tentho has financial experts who specialize in helping clients develop future-proof financial strategies. Tentho helps their clients to create sound financial roadmaps that can help them to achieve long-term business growth. Whether it is learning how to manage money today, or understanding better ways to plan for tomorrow, Tentho can help you improve your company’s financial future. Planning how to prepare your business for a recession doesn’t need to be difficult. If your company needs help creating a sound financial strategy for 2021 and beyond, contact Tentho today.