There have been many changes in the economy over the years, but this is nothing new. In fact, it is very common to expect fluctuations every decade for changes in how consumers and the world interact and move the economic needle.
But, it’s important to learn how to protect and prepare your business before, during and after a recession so that you can minimize losses and possibly learn how to thrive coming out the other side.
When times are good, prepare for tough times.
That is the key on how you can maintain financial stability when they inevitably arrive.recession-proof industries, like the construction industry or advertising, may not be immune from the effects of a recession.
Ways to Protect Your Business From a Recession
How can you keep your business afloat during a recession? What should a business do during a recession?
Here are some pertinent steps to take in your business to help protect your business during a recession or otherwise downturn in the economy:
- Prepare early for an economic downturn by spending less and saving more
- Determine the best time to buy inventory in bulk and when to make strategic moves that will help your business
- Have enough insurance coverage and a benefits backup plan in case you need to cut back on expenses
- Think long term – This is the time to do competitor analysis. The competition is fierce during a recession because everyone wants their share of shrinking consumer spending.
- Ask your customers what product or service that can help them during a severe economic slowdown. It may surprise you how much your customers will pay for a product or service that can help them survive.
- Diversify your income streams. Keep your cash flowing as much as possible. Cash flow during a looming recession is likely to be an issue for many small businesses. As the economy slows, companies will need to conserve cash for survival. One of the smartest ways to do this is to diversify your income streams
- Offer new indirect services or products that aren’t directly related to your business (indirect partnerships work well here)
- cross train employees or paid 3rd parties – have a workforce that is able to pivot and quickly react when needed
What businesses do well during a recession (recession proof)?
“Inelastic” is an economic term that refers tostatic buying habits of a good or service when its price changes. For example, during a recession when the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchanged.
- Health care
- consumer staples
- transportation
- essential services
- senior services
- grocery stores
- maintenance (such as plumbing and electrical)
- utilities
What businesses get hurt the most during a recession?
- retail
- restaurants
- travel/tourism
- leisure/hospitality
- service purveyors
- real estate
- manufacturing/warehouse.
What should a business not do in a recession?
Just like your personal life, it is important to watch that spending and money flow out that could be set aside for losses that you need to accommodate.
You’ll want to avoid:
- becoming a co-signer on a loan
- taking out an adjustable-rate mortgage (ARM)
- taking on new debt
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