Build resilience, survive a downturn

Navigating Recessions: 6 Survival Strategies

Resilience during times of economic downturn or instability helps entrepreneurs and companies build their businesses in a way that they can survive and even thrive in conditions of uncertainty and change. This article covers what business resilience includes and which strategies will help to cope with unexpected challenges and obstacles.

• What is a recession?
• What causes a recession?
• How to survive a recession in business
• Can businesses be successful during a recession?
• Making your business “recession-proof”
• 6 strategies for business survival during a recession 
• How do you succeed as an entrepreneur in tough economic times?
  

What is a recession?

A recession is when the economy slows down. This means that less stuff is being produced, fewer goods and services are being consumed, and fewer people are buying. It’s usually accompanied by rising unemployment, falling stock prices, and a general decline in financial well-being. There are all kinds of reasons why a recession might happen. It could be because of a financial crisis, a bad turn in the economy, a political crisis, or even a natural disaster. Over the past hundred years, the world has experienced a few recessions. After the Great Depression (1929-1933), we had the oil crisis of 1973-1975, the early 1980s recession, and the global financial crisis that started in 2007 with the collapse of the mortgage market in the US. We can’t forget the Eurozone crisis that hit in 2010-2013. It was characterised by high levels of public debt and financial problems in several EU countries.

One of the telltale signs of a recession is a drop in national production over two consecutive quarters compared to previous quarters.

The main things a recession will affect are:

A recession is when the economy slows down and production goes down. This can lead to more people losing their jobs, making it harder for businesses to get loans and invest, and even more businesses going bankrupt. Products and services might not be as good as they could be, and scientific and technological development might slow down. Overall, people’s living standards might go down.

What causes a recession?

What causes a recession? History shows that there are all kinds of reasons why production growth can slow down. Here are the most important ones:

— Changes in the global economy: Global economic events or financial market crises (like the Great Recession of 2008-2009).

— Internal economic problems: Things like inflation, budget deficits, and resource shortages.

— Technological progress and automation: New technologies can sometimes lead to job cuts and increased unemployment.

— Political events and decisions: Political instability or bad policies can hurt economic growth.

— The economy goes up and down like a yo-yo. In a market economy, it’s normal for there to be periods of growth followed by periods of decline. Recession is just part of the economic cycle.

So, a recession can be caused by things outside the country and things inside the country, and it can also be caused by natural economic cycles.

How to survive a recession in business

Every business is different when it comes to surviving a recession. Here are a few universal tips for any company:

Make time for yourself by freeing up your daily tasks. Don’t run your business the same way you do during regular times. Make strategic planning a priority.

Be open to new ideas. Embrace new ideas, but make decisions carefully and avoid taking on big risks.

Take a look at where you can cut costs. Look for ways to cut costs, but don’t make any drastic staff cuts.

Avoid relying on loans. Keep some extra cash in the bank to deal with any unexpected costs without having to borrow money.

Get to know your customers’ habits. Keep in mind that your customers’ spending habits might change during a recession.

Stay in touch with your suppliers and creditors. Keep in touch with the people who supply you with goods and financial support.

Can businesses be successful during a recession?

In short, yes, they can. There are companies that either came out of a recession or did really well during it. Some examples of businesses that did well during a recession are Disney, Lego, Netflix, and Groupon.

Sometimes, a company’s success during a recession is just down to luck. But more often than not, it’s down to the type of product they’re selling. Even if consumers cut their spending, food, water, and medicine are essential goods, so their producers are generally protected from profit loss. People are always on the lookout for little treats, so inexpensive comfort items and small luxuries, like designer perfumes and cosmetics, do really well.

People might cut back on non-essentials during a recession, but they’ll still turn to companies offering products they really need, both physically and mentally.

When it comes to planning a business strategy during a recession, it’s all about useful products, good planning, and risk management.

Making your business “recession-proof”

When the economy is in a slump, it’s important to take the situation seriously. Businesses can get ready for tough times by planning ahead without getting too stressed. It’s important to recognize the potential opportunities that a recession can bring. This period can help businesses stand out from the competition and build stronger relationships with customers. If businesses implement a thoughtful strategy and are ready to adapt, they can move from simple survival tactics to aiming for prosperity.

Small businesses can use a recession to their advantage by:

— Gaining market share from competitors who are slow to adapt;

— Focusing all efforts on maintaining a strong and stable cash flow;

— Making strategic changes that will improve the company’s position after the recession (reducing costs and improving operations).

6 strategies for business survival during a recession 

The pandemic, major geopolitical events, and the onset of a recession have made business owners work harder than ever to keep their enterprises afloat in recent years. Let’s take a look at what can help organizations deal with the next challenge.

1. Cutting Costs

This is one of the go-to strategies for keeping a business afloat during a recession, no matter what industry you’re in. It’s a strategy that’s stood the test of time and is often recommended for businesses looking to survive a recession.

For a business to stay afloat, it needs to make a profit. To make a profit, you’ve got to bring in more money than you spend. But during a recession, people spend less. If your sales go down, your profit will go down too—unless you cut costs.

There are four main ways to cut costs:

• If you can’t eliminate the expense entirely, try to reduce it.
• Cut the cost.
• See if you can get a discount on the expense.
• Look for an alternative.

To figure out the best way to cut costs, just make a list of all your business expenses and take a look at them. You can find this info in your budget or small business ledger. Think about what you need to do and what you can do without.

2. Look at Things Differently

Like any business, a recession is a big change. And when things change, your reaction is the most important thing.

Think about what you can do to change the way your business operates during an economic downturn. This can mean anything from tweaking your company’s processes to revamping your marketing efforts and interactions with other businesses. For instance, you might find that working with another company can be beneficial for both of you during a recession. It’s a good idea to take a close look at everything in your business.

Think about what your customers are looking for (like saving money) and keep an eye on what’s trending. Think about how you can best serve your customers. This might mean doing things differently from what you’ve done before or what your competitors are doing.

3. Focus on Relationships

To make sure your business can weather a recession, it’s important to focus on building strong relationships with everyone you work with. This includes your customers, suppliers, and creditors. With the right approach, these relationships will stick with you long after the recession is over.

Customer Relationships

During a recession, people spend less money. Your customers might start to be a bit more choosy about who they do business with. They might just stick to companies they like, know, and trust.

To be one of the companies customers turn to even during a crisis, you can:

• Ask for feedback (like satisfaction surveys).
• Come up with special payment plans for folks who are struggling financially.
• Make sure you’re putting your customers first.
• Go to some of the relevant networking events.
• Set up a referral program.
• Go above and beyond what was promised.

Relationships with Suppliers and Creditors

When consumers spend less, businesses lose out. If you’re facing financial difficulties, don’t be afraid to reach out to your partners. You’re their client, and they might also be invested in providing great customer service.

See if you can negotiate with your suppliers to change credit terms, get discounts, waive late fees, or even barter. Stay in touch with your bank and let your creditors know what’s going on with your finances.

As with many situations, communication is key. Your creditors and suppliers will value you just as much as your customers do, especially if you’ve built up a good reputation for paying on time.

4. Have a Reserve Fund

Do you have a financial cushion to fall back on? A cash reserve can help you meet short-term financial needs and avoid taking on new debt when money is tight.

During a recession, lots of companies rely on a cash reserve. It can help cover expenses and pay employees when sales are down and the business is losing money.

To set aside a reserve, just set aside 5-10% of your income. Ideally, you want to have enough saved up to cover about six months to a year of operating expenses.

If you want to earn more interest on your cash reserve, you could consider using an online savings account or a certificate of deposit (CD) with a high interest rate. But if you use a CD, you won’t be able to access your cash reserve for a set period. This could be a problem if you suddenly need access to your money.

5. Increase Sales

Even though consumer spending goes down during a recession, it doesn’t stop entirely. People always need the basics. So, there are ways to boost sales—even during a recession.

• Trying out some new marketing strategies.
• Offering incentives and promotions is a great way to boost sales.
• Offering more flexible work hours.
• Set up a loyalty program.
• Selling off old stock.
• Keeping track of what’s selling each day.

In a recession, customers are less likely to make long-term commitments. They might be a bit skittish about spending money. A guarantee, money-back offer, or free trial can give customers the reassurance they need to try your product or service.

6. Avoid New Debt

It can seem like a good idea to take out new loans to help your business manage periods of low profitability. However, most experts say it’s a bad idea to get more credit during an economic downturn.

If you’re short on cash, it’s best to look for ways to cut costs, increase sales, and work with suppliers and creditors before taking on new debt.

It’s always a good idea to manage your debt. Harvard Business Review found that companies with a lot of debt are especially vulnerable during recessions because of interest and principal payments.

How do you succeed as an entrepreneur in tough economic times?

One of the main qualities that helps entrepreneurs succeed in both good times and bad is their ability to adapt. It’s those entrepreneurs who can quickly adjust to changing environments who’ll be more successful.

Be Prepared for Opportunities

Keep your eyes open for new opportunities. They’re always out there. If you find them during a recession, you can make the most of a difficult situation. Ultimately, it’s about spotting market gaps and thinking outside the box that sets entrepreneurs apart.

Keep in touch

Make sure you’re always in touch with everyone, from your employees to representatives of similar companies. Get out there and make connections. Listen, take notes, and reflect on what you’ve learned. Use all your resourcefulness and wisdom to get the most out of your contacts.

Make the most of technology

Once you’ve found that perfect opportunity, you’ll need to act fast. Raising capital can take a long time, so the best solution is to use technology to automate this complex and labor-intensive process.