Recession-Proof your Business with this Guide
Is a recession coming in 2022 or early 2023? According to an article written by the Washington Post, Wall Street says yes, a recession is coming; while consumers say it’s already here. According to the article, the recession calls are getting louder on Wall Street, but for many of the households and businesses who make up the world economy, the downturn is already here. Surging gas prices and the cost of consumer goods are forcing families to choose between expenses. They can’t do it all. The worries among small business owners, consumers and others are illustrated by so-called Misery Indexes, which blend unemployment and inflation rates. The gauge for the US is already 12.2%, similar to levels witnessed at the start of the pandemic and in the wake of the 2008 financial crisis, according to Bloomberg Economics.
Ludovic Subran, chief economist at Allianz SE recently stated, “People are getting poorer, so this is not a recession, but it really feels and tastes like a recession.”
Before we delve deeper into things, let’s first understand what a recession is. A recent Forbes article says, “A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”
It’s important to realize that recessions are a normal part of the business cycle. You just need to plan for them; it’s key to your survival.
With the threat of the next recession looming, I started thinking about how small to medium-size businesses could survive a recession? There are no hard and fast rules, and no one has a crystal ball, but I believe there are a few things you can do or be ready for if and when it hits.
Do's and Don'ts
Get a grip on your current cash flow and put a plan together for the next year.
Running out of cash is always a big concern for a business owner, but the anxiety increases during a recession. Make sure you know your current cash balances and determine if there's a way to increase those balances. When I say increase, I don’t mean cutting things to increase your cash, but rather what can you do right now to increase your revenues to create more cash reserves.
Talk to your financial expert today to look at options for the future.
Create a line of credit with your bank. Having this as a fallback solution can support you if things get tough. Note, don’t wait until you are running low on money; it will make it harder to get approved. Apply now when things are good, get everything put in place, and it will be there in case you need it.
A second solution would be to consider factoring your invoices. One of the biggest struggles for SMBs is having to wait 60-90 days to be paid by companies. Talk to your financial expert about setting up a factoring account with a factoring agent. Once everything is approved, you can submit your invoices to them, and they will pay you 85% immediately. An additional 12% of the outstanding invoice is paid out once the invoices are paid in full. Yes, I realize it will cost you 3% of your money, but it’s almost like accepting payment with a credit card and paying the fees. Plus it will keep the cash flow going. (Note: these numbers are on average numbers, your financially expert should be able to help you get the best deal)
Speaking of credit cards, if you don’t have an account set up already, now is the time to do this. It is another way to keep your cash going. When a customer is late on payments or struggling to pay, tell them they can pay with a credit card. Again you have to pay up to 3% on your money, but you keep the cash flowing.
Build additional revenue streams if/where possible.
Take a moment to look at your current offering or product(s), is there something else you can offer that would create multiple revenue streams at multiple price points? A recession could affect one side of your business but create a need for another side. Recessions affect every business differently. Pull your team together, brainstorm ideas, see if something sounds feasible, but do it now. Don’t wait until things get difficult because at that point you may be grasping at straws to make something work. Plan ahead.
Grow your People.
Your people are your biggest asset, especially during a recession. You will need to rely on your people to help the company stay flexible, pivot when needed and think creatively when things get tough. Employees that feel like you are taking care of them, feel appreciated and are able to contribute to the growth of the company are more likely to go the extra mile when things get tough. You may need them to take a reduced salary, you may need them to work 4 instead of 5 days a week. Whatever it is, growing your employees today and building a culture that is positive, supportive and gives back to them will pay huge dividends if a recession occurs. Through some of the toughest recessions in our history, the owners that refused to let people go and instead found ways to keep them working were the biggest winners when they came out of the recession.
Step up the relationships with your clients.
Building a strong relationship with your clients will help you work through issues that can occur during a recession. Truth be told, building a strong relationship with your clients is ALWAYS a good idea. It will help with client retention when a potential recession isn’t the issue. If needed, create flexible agreements that can help each other if difficulties occur. Being able to support each other is key during a recession.
Don't react emotionally.
I know it's easier said than done, especially when you’re in the middle of the stress and anxiety that comes with a recession. That’s why planning ahead will help. If you do find yourself having to make tough decisions, don’t make them based on emotions and don’t make them in a vacuum. Get advice from others, like a business coach or a confidant.
Speaking of a confidant! Make sure you have someone that you trust, that you can talk to regularly and be completely honest with. When things get tough we have a tendency to become introverts. We think we are the only ones going through things when in reality there are a lot of people in the same situation.
Sometimes the hardest thing to say to your people is NO! But as a leader, you need to stay conservative with your finances. Create a budget and stick to it. It may mean doing without some things that would make the job easier, but it’s also when people become the most creative and could actually design, develop and implement something that is better and cost next to nothing. Stay the course, you won’t regret it.
Don’t let people go if at all possible.
When things get tough financially, the answer is not to let people go, the answer is to get creative. Letting people go will have an incredibly long-lasting impact on your business. You may think you have no other choice, but the reality is there are always other choices; you just need to be creative. Don’t just think outside the box; think as though there is no box at all. Allow your people to participate, and let them come up with ideas with you. The result will be that you will survive the recession and your business will thrive on the other side of it because your people know you have their backs even in the toughest times.
Don’t follow the same playbook.
You need to be willing to be a transformational leader. The worst thing you can do is go into a recession with the same mentality you had before the recession. You have to be willing to transform yourself personally and be willing to transform your business if needed. This will require you to be flexible, patient, understanding, strong and willing to stand side by side with your team letting them know that you are all in this together. Talk to your people as a group as well as one-on-one on a regular basis. Listen to their concerns, and talk through solutions if possible. But most of all, let them know you appreciate them and support them during these tough times.
The one thought I would like to leave you with is this: take care of your people, don’t abandon them and stand strong beside them. You don’t have to have all the answers; during tough times people come together and together you can get through it. It may mean sacrifices; it may mean having to say not right now; it may mean long hours and weekends. When people come together for a cause, the most amazing things happen. You just need to be open to thoughts, ideas and understand that together you will get through this and be stronger for it on the other side.
If you need help with any of these things, please don’t hesitate to reach out and set up a call. Our mission over the next 10 years is to help as many companies as possible grow to the next level and be the best they can be. That includes helping them grow their people. That is why we do these blogs, our podcasts and our videos. You may not want a business coach; that’s ok. Hopefully, our content helps you be the best you can be.
Until the next time, stay safe, and be healthy.