Recession Proof Your Business

With fluctuating economic conditions, it’s important to understand how to bolster your business so it can withstand undesirable economic circumstances. A recession is a decline in economic activity across an entire economy. It’s important to have strategies in place to withstand and recover from a recession to give your business a fighting chance.

By exploring these strategies, this article aims to provide a comprehensive guide on what a recession is, its implications, and how businesses can fortify themselves against the adverse effects of economic downturns.

What Is A Recession?

The National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” In the United States, the economic downturn of 2008, commonly known as The Great Recession, had low housing development that decreased mortgages, which limited banks investment capabilities. The lack of economic activity during this time is what made that period a recession. 

Another example of a recession during our lifetimes happened in 2020. During the COVID-19 pandemic, many consumers were saving rather than spending. People were uncertain of how long they would be unemployed and how long the pandemic would continue. Additionally, travel and events were postponed. The sharp decline in economic activity sent the United States economy into a recession. While the economy as a whole quickly recovered, many businesses went bankrupt during this time and the years following. Many business owners weren’t prepared for an economic event like this to happen, so they couldn’t react quickly enough to fortify their business.

Understanding recessions is not just about recognizing the past; it’s also about preparing for the future. Businesses, in particular, need to adopt strategies to become recession-proof, ensuring their survival and prosperity even in tough economic times. This involves meticulous financial tracking, strategic marketing investments, diversification of offerings, reasonable sales forecasting, and thorough planning for potential economic downturns. Building strong customer relationships, operating within or below budget, and establishing robust business credit are also essential steps for businesses aiming to weather economic storms.

What Does It Mean To Be Recession-Proof?

A recession-proof business is one that has measures in place to withstand the impact of poor economic conditions. Some industries are naturally recession proof, such as medical and education, according to HubSpot. However, others need to bolster their business to weather a recession.

How To Become Recession-Proof

Recession-proofing your business is a multi-faceted process that takes time and expertise to culminate. By following these key steps, you’ll be on track to recession-proof your business.

• Keep track of finances. In order to keep your business afloat during a recession, you need to have a solid grip of your current finances. Keep track of your overall business performance, your day-to-day numbers, and your financial history. This will make you an expert on your businesses finances and allow you to act quickly when a critical situation arises.

• Invest in marketing. In the case of a recession, many businesses choose to cut marketing as a first line of defense. On the contrary, marketing is just as important to have during an economic downturn as it is during good times. Marketing makes consumers aware of your business, and attracting new business is paramount to weathering the storm.

• Diversify offerings. Another strategy businesses can use to strengthen their defenses against economic upheaval is diversifying their offerings. Sometimes offering a new product or service is the best thing to do to attract business and continue prospering. For example, Kodak, the film photography company, filed for Chapter 11 bankruptcy in 2012. As new technology developed, their product became obsolete. Instead of accepting their circumstances, the company reorganized and rebranded into an imaging company. By diversifying their offerings, Kodak was able to stabilize their company.

• Forecast sales reasonably. Reasonably forecast your sales, cash flow, profit, and budget. Look at your financial history and current sales to forecast your future performance.

• Plan for a recession. Prepare and plan for a recession to occur. They are always going to happen, but you can never be sure when, so make sure to be prepared. Create an emergency fund, pay down debt, and create an action plan so you can continue operating during a recession. Include best case scenarios, realistic outcomes, and worst-case scenarios in your planning. Doing so will prepare you for the actions you need to take when a recession occurs.

• Track KPIs. By tracking KPIs, or Key Performance Indicators, you’ll be able to track which marketing campaigns are resonating with your target customers. By understanding your customers, you’ll be able to stay on top of their needs during a recession.

• Be the market leader. Set yourself apart from the competition by having quality products and services, supportive customer service, and engaging marketing. By being the market leader, consumers will turn to you even when they are being particularly careful with their spending.

• Invest in strong relationships with customers. Spend time nurturing your leads and investing in strong relationships with your customers. This will allow your business to be aligned with their needs. Additionally, your business will be top of mind when customers need a product or service like yours.

• Operate under your budget. You should always operate within your budget, but it’s especially important if you want to recession-proof your business. To take it a step further, you should strive to operate under your budget. This will give you more leeway when a recession does happen because you’ll have less debt and more savings to keep you going.

• Build a business credit. Build a line of business credit when your business is doing well. This way, if you need to borrow money during poor economic conditions, you will have a line of credit that makes it easier to do so.

Make a Recession Plan Today

Following these steps will support your business and strengthen your ability to beat a recession.

The first step to recession proofing your business is having a plan. By thoroughly preparing, being flexible, and strategically pivoting, you’ll increase the chances of your business surviving the next recession.

 If you’re ready to take the first step towards preparing for a recession, contact Mythos Group today. Our consultants will educate you on how to navigate a recession and guide you through creating a plan for your business to survive the next recession our economy faces.