5 Simple Ways to Recession-Proof Your Small Business
You never quite know when a recession is going to hit, and it is worse if it comes as a shock. Many businesses failed to prepare for the economic impact of the covid-19 pandemic and subsequently went under as the global economy began to shrink.
Small businesses have felt the biggest impact, as is often the case, which is why it is vital to recession-proof your business. A recession is never good news, but you can set your business up for survival by having a plan firmly in place.
Here are some simple tips to help prepare your business for the future:
1. Stay On Top of Your Financials
Preparation starts with awareness. You should make it habitual to check your financials every day. You need to have clear and accurate knowledge of your financial situation in order to make a feasible plan for a future recession.
Using a Key Performance Indicator (KPI) system is a good idea to understand which practices generate the most return on investment and which expenses you can spare. Understanding which costs are most worthwhile and which are not will allow you to prune your business when necessary. Besides, cutting costs that do not add to your profit is an excellent way to set your company in good stead. The fewer financial burdens you have when a recession hits, the better.
We can help you with Real Time accounting available to you via our bookkeeping packages, using accounting software leaders Xero. Your up to date financial picture available to you at any time, from anywhere.
2. Minimise Operating Costs
It might be very tempting to splash out on swanky new office furniture or upgrade your coffee machine but is this necessary? In order to prepare for a recession, it is crucial that you reduce discretionary spending and keep costs to a minimum.
However, it is a balancing act. If you are overzealous in cutting costs, you could damage your own productivity in the process. For example, repairing or replacing a damaged item in your office is ok but do not make frivolous upgrades for aesthetic purposes. Carefully consider the return on investment of each cost to optimise your profits. A good accountant can help you forecast your ROI any significant purchases and advise which purchases are unwise.
3. Improve Your Credit Score
It is difficult to secure a loan during a recession and you will need an excellent credit score. The problem is, it is difficult to improve your rating when times are hard. It a good idea to start working on your credit score now to put yourself in the best possible position should you require a loan to keep your small business afloat. Remember, do not limit your efforts solely to your business; it is definitely worth making sure that your personal credit score is as high as possible, too.
Here are some straightforward ways to improve your credit score:
- Pay your bills on time
- Reduce any existing debts as much as possible
- Regularly check for fraudulent activity
- Only use credit when it is really necessary
4. Focus on Marketing
In a recession, marketing matters more than ever. You might be tempted to slash your marketing budget when this happens, but this is a mistake that could prove fatal for your business. Maintaining brand awareness is vital and will let your customers know that you are still here – you do not want them to forget about you so continued marketing allows your business to stay in your customers minds and they will more be likely to return once the situation improves.
It does not hurt to re-appraising your marketing, to analyse previous campaigns and weigh up which ones worked best for your business. You may find that you are able to forfeit a few practices that are not serving you, but always make sure that you continue to concentrate on what works best for your business.
5. Retention Over Acquisition
During a recession, your existing customers are the most valuable to you. It is fine to market to new customers but when hard times hit, you must prioritise customer retention over acquisition. Repeat customers tend to spend more but they can also help to drive customer acquisition by recommending your products or services to their friends and family. In short, remember, when times are tough, you need to look after the people who look after you.
Some great ways of taking care of your regular customers are through after-sales assistance, social media engagement and special discounts. This can help them to feel valued and appreciated, and they will keep on coming back. Beyond that, keep working on gaining an insight into customer experience so that you can continue to provide an excellent service, even as times change.
It does not have to be complicated preparing for a recession but the sooner you take action, the more prepared you will be to safeguard your business. We cannot prevent recessions from happening, but we can be prepared and ready for them.
Talk to us today if you feel you’re not able to access your financial information in real time. We can help.