How to prepare your business for a recession?
The experience of 2008 recession is one of the most formative things that could have happen to this generation of business owner. It has proved that a recession is something that happen to us right here and now and that a business owner needs to prepare for it.
The outbreak of covid19 and its economic consecutions further prove just that. Even though no one can prepare for the unexpected, there are still measures you can take to make sure your business is on a firm ground during a recession.
Identify what brings you income
The first step is to know what parts of your business are essential and what parts need to be protected first and foremost. Those are the parts that bring you the most income and that bring income in a steady and predictable manner.
There’s the so called 80/20 rule that applies to retail but that can be used by other kinds of businesses as well. It basically states that 80 percent of your income comes from 20 percent of goods and service you’re selling and those are the ones you should focus on.
Cash flow
Cash flow is more important for a business and its stability than the size of its savings and the value of its assets. A business depends on the cash flow not only for its day to day expenses, but also as a proof that it’s working and has a steady stream of working coming their way.
It’s the first thing to protect when you’re looking to keeping your business safe during hard times. Many decide to rally on savings and the assets they can dispose of but that should be a last resort and not the first thing to do.
Core competencies
There are some competencies that your business needs to run and without which it can’t live without. These are always easier to identify than you might think, since you know what makes a business work after running it for a while. It’s essential to have a plan to protect these core features.
It’s best to think about your business and most importantly its employees as a scheme of concentric circles. The smallest circle should represent the competencies that you need the most and so on, and make your decisions in regards to this chart.
Customer loyalty
Recessions come and go. Sometimes they are rather difficult and it seems like they would change your business forever, but the truth is that they will pass as they always do. This means that you should think about keeping your customers loyal once the hard times are over.
Customer loyalty isn’t something you can work on in advance and something you can do quickly. Instead, it should be your goal and long term plan regardless of the up and coming recession. It’s best done by making sure your business is reliable and your customers can trust you.
Don’t cut back on marketing
Marketing is often amongst the first things to go when your making cuts to your expenses. That’s a mistake since it’s essential to keep your marketing efforts during a recession even if you do it at a smaller scale and to a different target audience.
This shows your customers that the business is still there and that it works even though things are tough right now. Marketing efforts should also show how your business has changed and adapted to new realities of a recession and cutting back where needed. This goes for business to business marketing as well to that oriented towards the general public.
Knowing when to cut yours loses
There may have a time when you may need to cut your losses and to stop some of your services. It’s important for this decision to be made deliberately and to be a part of a plan and not something you do because you’ve lost the means to operate.
This means that you should know which of your operations are needed and which you plan to cut back on when the time comes. Everyone who are involved in and affected by this decision should be notified on time.
Conclusion
A global recession that we have all undergone and the economic impact of covid19 pandemic are making businesses prepare for hard times. This is a smart thing to do even if they don’t come right away (or at all). It’s important that efforts are put in place right away and that you have a backup plan in case something happens.
The plan should include identifying what your core business is and how it should be protected. You should also have the plan to keep your customers updated about the new realities of your business, meaning that marketing budgets shouldn’t suffer.
