How to Outpace Your Competitors During a Recession Here's how you can use economic uncertainty as an opportunity to grow your business and stand out among your competitors.
By Joseph Camberato Edited by Chelsea Brown
Opinions expressed by Entrepreneur contributors are their own.
There's been a lot of debate about whether the U.S. is in a recession or not. The economic signals have been confusing at best — interest rates are rising, two banks have failed, and there have been many well-publicized layoffs at major tech companies.
However, the jobs report has been largely positive, and signs indicate that inflation is slowing. In short, whether or not we're headed for a recession is anyone's best guess.
But as a business owner, you can take steps to prepare ahead of time. By planning and acting strategically, you can use economic uncertainty as an opportunity to grow your business and stand out among your competitors.
Related: 4 Ways Entrepreneurs Can Achieve Massive Growth in a Recession
Build up your cash reserves
A cash reserve is always important because it improves the financial stability of your business. But it's even more critical during a recession when your revenue and profits can suddenly drop, putting a strain on your cash flow.
Poor cash flow can make it difficult for your company to pay its bills, resulting in late fees and strained relationships. If the situation gets bad enough, you could even be forced to close your business altogether.
One of the best ways to improve your cash flow is by watching your spending. Look at your budget, and identify any areas that can be reduced or eliminated. You can negotiate your contracts with suppliers and reduce any discretionary spending.
From there, focus on building up your cash reserves, especially your emergency savings. You can also consider taking out a line of credit as an additional cash reserve. With a line of credit, you can draw from it on an as-needed basis but only have to repay what you actually borrowed.
Invest in technology
Next, look for ways to increase your operational efficiency by investing in technology. The right technology can help you improve your internal processes and better serve your customers.
For example, self-service chatbots allow you to keep in constant contact with your customers, even when your sales team isn't available. Investing in analytics can help you identify what's working and what isn't, so you can make data-driven decisions about your business.
Investing in technology ensures that your business can continue to thrive during the recession. That way, when the economy does rebound, you're not starting over from zero.
You might think that making an investment of this caliber isn't worthwhile in poor economic times, but the savings you yield after you've implemented new technology could offset the cost of your financing and drive further revenue. With the right lender, you can use financing to cover the purchase and preserve cash flow.
Related: 5 Ways to Protect Your Business From a Recession
Focus on customer retention
During a recession, you should double down on your customer retention efforts. Keeping a customer is always less expensive than acquiring a new one, so the majority of your efforts should be focused on keeping your current customers happy.
Make sure your customers are happy with the service you're currently providing them. Focus on quality above quantity — during an economic downturn, the worst thing you can do is sacrifice the quality of your products or services in the name of productivity.
Come up with a marketing strategy focused on customer retention. This might include offering discounts or implementing a loyalty program to reward repeat business.
Expand into new markets
Many people don't realize that recessions can be a great opportunity to expand your current business model. That's partly because there's less competition during a recession. Instead of looking to expand, most businesses will retreat and focus on survival above all else.
Layoffs are common during a recession, and businesses that are hiring will often lowball potential employees out of fear of spending money. That means you'll have more access to talented employees who can help move your business forward.
Unfortunately, some businesses will be forced to close their doors, which will create an opening in the market. Customers will be looking for new solutions to meet their needs, which allows you to step in.
Before you can successfully expand into a new market, you'll need to take some time to pay attention to shifting consumer demands. Over time, you'll find opportunities to offer additional products and services and expand your current customer base.
Related: For Savvy Entrepreneurs, an Economic Downturn Creates Opportunity
Focus on company culture
During a recession, most employees will start to feel worried about their jobs and financial security. That's why it's important to continue focusing on company culture. Your employees are your most important asset, and when they succeed, your business will succeed.
Look for ways to continue engaging your team and offer good pay and benefits. Not only will this create more loyalty among your current employees, but it will make your company more attractive to future job candidates.
Consider taking out a line of credit
Finally, it's a good idea to consider taking out a line of credit before you need it. During a recession, banks and credit unions tend to tighten their lending standards, so it's a good idea to secure the funds you need before your credit line is reduced.
A line of credit is a good option for businesses with fluctuating cash flow needs. It can help you fund new investment opportunities as they arise. For instance, if you plan to invest in new technology or additional inventory, a line of credit gives you access to the funds you need.
Even if you don't have any immediate plans to invest in your company, a line of credit can be used as an additional cash reserve for your business.
An economic downturn brings a lot of uncertainty, but there are opportunities to be found as well. Focus on staying visible in the marketplace and continually look for new opportunities to expand. This will put your company in a good position once the economy begins to recover.
