Last Updated on August 10, 2023 by David
Guest Post by Samantha Rupp
If there’s one thing the past 15 years has taught American business owners, it’s that recessions are inevitable. After the 2008 recession, many thought that we wouldn’t be due for another for a few decades — that is, until COVID-19 came around and sent the economy downhill fast.
That means that, for many startup and small-to-medium sized business owners, a top priority should be planning for a recession. The last thing you want is to end up one of the 100,000 small businesses that shut down permanently due to the pandemic and recession.
That’s why, today, we’re focusing on recession-proofing. First, a quick disclaimer: there is a lot of unpredictability in the world of business. So, while there’s no truly recession-proof solution in many cases, there are actionable steps that you can take to minimize the potential for recession damage.
Let’s take a look at some of the moves you can make now to prevent a downturn destroying your business later.
Start with savings
Just like in the world of personal finance, it’s important for your small business to also have emergency savings built up. This can be difficult, as for many businesses, there’s little left over at the end of the month after all your regular costs and salaries have been paid.
However, it’s not impossible; and it’s essential if you want to be able to survive a recession. Emergency savings can help cover expenses during the first few weeks or months of a recession, when you need time to decide what your next move is.
Once customers or clients start drying up (because they’ve run out of funds themselves), too many business owners immediately respond by shutting down their shops, fearing that they’ll end up losing too much money if they try to wait out the recession. However, if you have emergency savings in store, you’ll have the leverage you need to cover costs without going into debt. This gives you time to sit down and figure out how long you can realistically wait out the downturn, or whether you can scale back without shutting down entirely.
Having an emergency savings isn’t a guarantee that you’ll be able to make it through the recession, but it’s something that you can rely on to give you breathing room during a crisis. And that can mean the difference between making a hasty and panicked decision, and one that’s well thought out and beneficial to yourself and your employees.
Consider your assets
Your assets are a part of your business’s total wealth. Assets include tangible assets like buildings, trucks, forklifts, printers, and other high-value items, but they also include abstract things like your investment portfolio, intellectual property, patents, and more.
Why are your assets important when recession-proofing your business? It’s pretty straightforward: owning the right assets can mean the difference between losing all your money in a market downturn and being able to stay afloat.
It’s easiest to see why with an example:
- Business 1 owns a very aggressive investment portfolio and has redirected the majority of profits into this portfolio in hopes of snowballing income. Most of their free cash is tied up in these investments.
- Business 2 owns a diversified portfolio, a healthy emergency fund, and real estate.
Business 2 has an asset profile that’s much more ready to handle a market downturn. Why? Because their set of assets, while less geared toward explosive growth, is also lower risk. The diversified portfolio is better protected against risk. They have a solid emergency fund. And real estate tends to bounce back over time, where new companies you’re invested in might just go under.
Grow slowly
Too many businesses are eager to hit ever-higher profit margins, bring on more employees, and sign on new clients. However, there’s a smart way to do this and a risky way to do this. And, if an economic downturn or recession hits and you’ve taken the risky route, there could be serious consequences for your business.
How does growing too fast affect your business’s recession proofing? The bottom line is that you have to spend money to make money. And, if you’re spending tons of money — maybe more money than you can realistically afford — in an effort to bring on more employees or expand clientele, you might be dangerously posed if a recession strikes.
Being ill-prepared can lead to side effects like high employee turnover, lost investments, slowing business, bankruptcy, and even going out of business entirely.
What’s the solution? Like the moral of the story of the tortoise and the hare, slow and steady wins the race. Bringing on a dedicated team of top talent — even if it means fewer employees — can often help you to succeed even when markets are rough. And be sure to only invest in a new business expansion when you know you can comfortably cover the costs before profits start rolling in.
Conduct both short term and long term market research
Your business plan should always include a solid portion of market research. This is important for you, as it gives you the lay of the land in your industry, but it’s also important for investors and lenders, who want to see whether your business will be worth risking their capital.
And, if you’re hoping to recession-proof your company, market research is essential. Many businesses focus only on short-term market research, looking at where industries are likely to go in the next 1-to-5 years. While this may give you some indication of the direction you should go in that timeframe, it doesn’t help when planning for the long haul.
For that, it’s important to conduct long-term market research too. This will require questions like:
- Will my business model become obsolete due to changes in technology?
- Is there consistent demand for the products or services I produce?
- How have industries like mine performed in past downturns and recessions?
That last question is especially important for recession-proofing. If you see that businesses like yours have historically struggled during harder economic times, then you know it’s much more important to prioritize safeguards against a downturn.
It’s important to reiterate that there’s no magic bullet: no business is 100% invulnerable to troubling economic times. However, there are steps you can take — like the ones reviewed here — that can help get your business in the best shape possible if the market does start to sink.
About Re:amaze
Re:amaze is a modern helpdesk and customer messaging platform designed to help eCommerce businesses boost customer happiness and revenue. Re:amaze allows all customer-oriented teams to work together in a shared inbox through email, social, SMS, voice, and live chat. Re:amaze also comes packaged with automated messaging and chatbots so eCommerce brands can succeed at the front lines of conversational commerce.
About Samantha
Samantha Rupp holds a Bachelor of Science in Business Administration. She is the managing editor for 365 Business Tips as well as runs a personal blog, Mixed Bits Media. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling.