Whether we like it or not, recessions are a natural part of our economy. Although the severity of economic downturns we have experienced have varied immensely, the fact is that they happen. And given this, every savvy business owner should have a plan – or at least an idea of a plan. Being prepared for hard economic times is critical, especially in the United States. Because even though the turn in markets is expected, as we learned in 2020, somethings are not. The economic downturn we currently find ourselves in has a catch: it’s accompanied by a global pandemic. The presence of COVID-19 makes doing business during the recession even more complicated.
As such, certain types of business that may have done well (movie theaters, discount retailers, auto repair services, day cares, etc.) are not even allowed to be open during this one. And these normally recession-proof businesses make up just the tip of the iceberg. So many businesses have been adversely impacted not only by the current state of our economy. But they have also experienced the drastic changes in regulations and day to day life due to the pandemic.
Figuring how to address these tough times as a business owner is no easy feat, but it can be done.
In this post, we will share several tips and ideas regarding ways to successfully approach the economic and social changes from a business perspective. Surviving – or even prospering – during an economic downturn can absolutely be done. But it takes careful thought and planning, flexibility, and oftentimes some big decisions.
Businesses During Recession: Take Action
First, we want to highlight the importance of taking action.
If you are a business owner, inaction during an economic downturn would mean choosing to ignore the fact that times have changed and not changing, addressing, or adjusting your operations.
Although this is an option, it is not a viable one. It may be tempting to try and ignore the pandemic and the recession and hope that they will just go away, but it’s not a smart business practice.
In fact, it is the riskiest response your business can have to economic turmoil. One of the main reasons for this is that businesses with a delayed response end up having to make up for it – and overreacting – later. They cut costs more than necessary and make hasty decisions, which can create even bigger issues long term.
But take sensible action
On the flip side, acting too quickly can be quite risky as well. Making snap business decisions, without fully thinking through and analyzing all your options can have dire consequences for your business.
Instead of acting too rashly or not acting at all, business owners – especially small business owners – should be shooting for something in the middle. This means proceeding with some urgency (but not panicking). Afterwards, it means analyzing the situation and coming up with several contingency plans, and playing both offense and defense with the recession and the marketplace.
What follows are several thoughts on how you can do exactly this.
What a Business Can Do During Recession
Any business owner’s main objective during trying economic times should be to stabilize their business. Some companies may have additional goals such as emerging from the crisis better than ever. And even some may want to use the disruption as a time to rebrand themselves.
This is all possible, but nevertheless the goal to at least remain stable is a constant across the board. No one wants to downsize, and no one wants to have to make important decisions on a shoestring budget.
So how do you stabilize your business during a recession and a pandemic?
First, we recommend conducting a modified SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. If you have a strategic plan (and if you don’t, you should), you likely have already conducted a SWOT analysis and can refer back to it.
The major “Threat” in this scenario should be fairly obvious (the economy), but can also include specific obstacles that social distancing requirements may present to your company, the way that your competitor’s are handling the situation, and more.
The other three are less obvious, though. The current economic situation may have totally changed what you typically think of as your business’ strengths, weaknesses, and opportunities.
It is especially important to spend time considering your weaknesses, or vulnerabilities, during this time. If you identify these early on you have a better chance of being able to manage them, which will be the most important component of maintaining your company’s stability during tough times.
Once you have a good grasp on the challenges, vulnerabilities, and weaknesses you face moving forward, you should be ready to start to think through the various scenarios that your business may be faced with.
It’s a good idea to draw up plans for at least three levels of economic downturn (modest, severe, and somewhere in the middle), and predict how each one would impact your business, financially and otherwise. Even if your scenarios do not end up being spot on, they are sure to give you a head start on managing the implications of marketplace behavior on your business.
2. Get on the offense
Now it is time to start thinking offensively.
One thing that always rings true during trying economic times is that some businesses make it and some don’t. Many sectors shrink, with the companies best equipped to manage the recession or depression rising to the top, and the others failing.
In order to be one of the businesses that rises to the top, you have to know your competition. This means not only conducting an analysis of your own vulnerabilities and weaknesses, but also of that of your rivals.
Are any of them particularly ill-positioned to adjust to social distancing work?
Were they already experiencing financial struggles before the economy took a hit?
These are all important things to think through, as they will help dictate how aggressive you need to be and what particular tactics you may need to take to stabilize your own business.
Once you have a good idea of weaknesses that your rivals are facing, you want to capitalize on that information in shaping your own operations and marketing strategies. Take advantage of their mistakes and weaknesses and make sure to take a different approach when applicable.
You can highlight your strengths and their weaknesses when communicating with investors, planning for the long term when things start to calm down, and even when developing a business model for the future.
But don’t go too far on the offensive, because the main goal is still protect yourself.
3. Strategize for efficiency
The two most important things any business can hold onto during not so good times are enough cash flow and liquidity. Without these fundamentals, you forsake the opportunity to control your own financial destiny. You will almost certainly still need to find ways to cut costs, you just want to ensure that you’re doing this from a place of strategy rather than dire necessity.
In fact, it is extremely important to maximize your efficiency during a recession. Ensuring that your business is running as efficiently as possible will likely mean paying close attention to the top line, letting go of unnecessary side projects and ventures, rethinking pricing strategies and products, skimming down your investments and more.
For more helpful business financial tips, read this recent post on business money management.
Taking advantage of owning a business during a recession
For some businesses, simply focusing on stabilizing isn’t enough. There could be a few reasons for this: they need more of a boost than the stabilizing techniques discussed above can give them. Maybe they have been wanting to make a shift for awhile and feel that now is the time, or any number of other causes.
Regardless of the reason, economic tumult can actually be a great time to make some major changes at your business. Sometimes, adjusting your operations can be just what you need to make it to the other side of the downturn stronger than ever.
Flexibility is Key for a Business During Recession
Flexibility is key during uncertain and trying times, and businesses that are more willing to be flexible in their business model are setting themselves up for success significantly more than those that are not.
This holds true even more in the current economic downturn than ever before. Because what we are dealing with currently is not just threatening business’ financial health, but also forcing them to quite literally change the ways in which they conduct their business.
Because of this, businesses that are ahead of the curve in adjusting – or sometimes even pivoting – their operations to be more consistent with the reality we are living in, are giving themselves a huge head start in the short term. And in using these new business opportunities, they are giving themselves the advantage in the long term.
We Can Help
Whatever the best option for you and your company, be sure to consider it carefully. It takes dedication and hard work to run a business. Make sure that when you plan for recovery, you have some professional guidance to make the best decisions.
At Saddock Advisory, we can help determine if your business is financially healthy. Get in touch with us here to find out more.
We are here for you to talk, analyze, and strategize, so that your business will emerge from this better than ever.