Don't Let a Recession Ruin You. Here's How Your Business Can Thrive During Hard Times Follow these strategies to grow your business during an economic downturn.
Opinions expressed by Entrepreneur contributors are their own.
Over the past two years, we've seen a health crisis and financial market turmoil destabilizing the longest-ever US economic expansion period. Bear markets continue to grow, and an economic slowdown is already showing. What this means is a recession is likely around the corner. And while it is intimidating knowing we must brace for the imminent, it shouldn't be surprising and is quite normal.
We're due for a recession. After all, recessions are part of the economic cycle. Recessions weed out unsustainable businesses and create opportunities for the bold who venture to capitalize on recession-friendly products, services and technologies, and institute dynamic pricing that can be adjusted to meet demand. If you're an owner, decision-maker or stakeholder, now is the time to evaluate your business.
Related: 9 Smart Ways to Recession-Proof Your Business (Fast)
Know your industry
Is your industry growing, declining or holding stable? Are there features of your industry that are yesterday's news? It's essential to be an expert in your industry. While this should be a given, many companies are more interested in their output than the output of their sector collectively. More need to care about what's working and not working within their competition.
Businesses may not truly be comparing themselves to the proper competition. Today, your competitors are not just going after the same dollar but are creating convenience. For instance, as a former arts executive, I can tell you that the main competitor of the arts is not performance venues but streaming services.
During the pandemic, live performances declined in most cases to a full-stop, while streaming services grew tenfold. While this may seem like an unfair comparison, due to precautions mandated for live performance audiences, it's one where a competitor saw a market space that primarily served the same demographics and capitalized. Simply put, streaming services saw an opportunity and filled the void. They contracted some of the leading creative minds in the arts to generate content and value.
If your industry has an opportunity to tap into new markets due to the economy, you're in luck, but that doesn't mean you shouldn't take advantage. If your industry is in threat of being siphoned, you may want to expand your operations where there is an occasion to grow your market base. Determine whether the markets for your business are going through change and accordingly adjust your path. If there isn't an opportunity for your market, it's time to rethink your business model.
Related: Why You Need to Learn to Adapt
Know your financials
When the signs of a nearing recession appear, it's imperative to have a firm grasp on your cash flow and capital sources. Switch your focus from profit and loss statements to monitoring the balance sheet. This is particularly important because you'll want to make strategic financial decisions before inflation makes any spending needs untenable. Many companies will choose to cut corners during this time. Deep cuts may be required, but those are very different from cutting corners.
You will need to arm your team with the tools necessary to succeed. This means making smart spending (financing, etc.) instead of using your cash. You want to build your cash reserve during this time, not deplete it, which is bound to happen if you're not wise about protecting it. You'll also want to build your credit actively and have secured a credit line where you can negotiate monthly payments, instead of making expenses in full where possible.
Creating micro short-term financial metrics will help you monitor any returns on spending. These metrics can be completed in many ways, but what's important is that they allow you to make decisions proactively instead of reactively. You must be flexible during a recession, not just being open to frequent change but understanding where the changes need to occur. This will also help you to create reasonable forecasting goals that can be monitored and adjusted as needed.
Know your people
Personnel is the most critical investment in any industry. But, to retain, develop, and inspire talent, you must be transparent with your team about the state of things. Sometimes, especially in recessions, this isn't good news.
If you must make staff reductions, consider hour cutbacks and layoffs. Rehiring across the board is a timely process that sucks up many resources that could be used elsewhere. Firings, pay cuts and hiring freezes affect every department within your business and damage morale. You'll lose more employees this way who will set their sights on greener pastures.
You may consider taking a portion of your cash reserve and putting it into a high-yield money market account. This could have added payout benefits that your business could award to high-performance employees through a raise.
Know your customer
Does your business have a service or product that stands shoulders above the rest, or is it time to innovate and diversify? Who best to answer this question than your customers? During a financial downturn, your customers are your most significant resource, and not just regarding revenue generation.
Knowing your customers' financial health and spending habits will help your business target growth. Collecting and analyzing demographical information will be your reliable ally in understanding what sectors and walks of life your most recurring customers exist. It will also tell whether there is enough demand for what you supply. If not, knowing customer spending habits, which can be discovered and broken down by reputable data centers, will help your company understand where to pivot.
Related: The Future Of Human Capital Lies In Data Analytics
Know your options
At the end of the day, as a business owner, you don't have to consider any of the above. There are other options, and you should understand what those are. If the battle for survival is too daunting, never fear. There's much you can still do.
You can work towards a merger if your organization has acquired enough clout. If there are interested parties in what your company does, you can sell it. There's no shame in resigning when it's apparent that it's time for another leader to emerge. And, of course, you could close down shop. It takes a lot of insight to come to this option. Nobody wants to give up on something they created. But, sometimes, it's necessary to clean the slate. If the ship is sinking fast, it's best to let all parties know sooner than later so there's time to load your team into the lifeboats. Give your team the same courtesy with which you'd want to be extended. Failure doesn't define you, but it does make you more resilient for the next go-'round.
Related: 6 Healthy Habits to Maximize Your Mental Health and Get You Through Your Worst Days
