The world of business is a fickle one. One minute you're on top of the world, and the next you can find yourself struggling to stay afloat.
There is much talk at the moment of NZ heading into a recession, and whilst you may not believe this, you can’t ignore the fact that labour shortages, product shortages, cost of living increases and increased debt servicing costs are having negative effects on small businesses.
Unfortunately, it's during times like these that many small businesses fall victim to the downturn in demand.
It's crucial for business owners and managers to prepare their organizations to survive, and possibly even thrive, through the next recession, whenever it comes.
If you're looking for ways to recession-proof your small business, then look no further. Here are 7 strategies to help you protect your business against a downturn in demand.
What is a recession?
A recession is a time when the economy contracts – generally defined as two consecutive quarters of negative growth. This can be a difficult time for businesses, as demand for your products or services may decline. However, there are strategies you can use to recession-proof your small business and protect against a downturn in demand.
How can a recession impact my business?
A recession can impact businesses in a number of ways. Typically, demand for goods and services declines as people and businesses tighten their belts. This can mean that businesses have to reduce prices or offer discounts to compete, which can impact profit margins. Businesses may also find it difficult to secure finance or credit, making it harder to grow or expand. It's important for business owners to be aware of these potential impacts and put strategies in place to protect their business against them.
Here are 7 strategies that you can action now that will help recession-proof your small business:
- Invest in your employees, by upskilling and cross training staff and improving their experience at work. You'll need to rely on your team to help your business stay flexible, pivot, and think creatively during a recession, so it's important that employees are in prime shape to meet these challenges.
- Create an annual budget and operate within it. Track key performance indicators (KPI’s) and measure your performance against the budget monthly. Be prepared to make tough decisions when the time comes.
- Create “What If” plans. Take your budget and plan 3-5 different scenarios that may happen. Outline the actions you would take for each scenario. In times of stress these will be invaluable.
- Create a cashflow plan. A rolling cashflow forecast for the next quarter can serve as an early warning tool that you may be running out of cash and will allow you to make changes now to avoid this.
- Build up a good relationship with your customers, suppliers and financing organisations. These relationships are critical when products and money are in short supply.
- Create multiple revenue streams – how can you do this without large investment in infrastructure? Widening your customer base and tapping into new markets minimises your risk.
- Streamline your processes and improve efficiency. How can technology help?
There is no one-size-fits-all answer when it comes to recession-proofing your business but implementing some or all of the strategies I’ve outlined will help protect you against a downturn in demand. It’s important to remember that these strategies require commitment and consistent effort if you want to keep your business afloat during a recession.