Many businesses faced a lot in recent years, and as we still continue to work through the COVID-19 crisis, we can’t help but think about the economy as it grows and shrinks. One thing we’ve all learned is that no one knows what the future may hold.
At any point, there may be crises and recessions—sometimes businesses will flourish, and sometimes they won’t. It’s particularly troublesome for small businesses that may not have the same financial backing as large companies, which makes recession-proofing your business all the more important.
In this article, we will discuss how to handle future economic changes and recession-proof your small business.
What Is Recession-Proofing?
Though financial management does contribute a big part to business success, recession proofing is a factor that’s just as important. Recession-proofing does not merely mean stacking away cash for a rainy day. It includes better business practices, forming networks and alliances, broadening your customer base, and importantly—keeping morale high amongst your employees.
Here are some ways you can recession-proof your business:
Create a Cash Flow Plan
Running out of cash during a downturn is always a principal concern for business owners. If you don’t already have a cash flow plan, start by understanding your current cash balances, monthly income, and expenditure sources. Try to discourage any misuse of cash and unnecessary expenses in the office.
Focus on measuring cash flow, especially if you have a start-up business, by creating a rolling cash flow forecast for the first few months. Guide your management team accordingly so that there is never a dearth of cash if or when a recession arrives.
In addition, focus on building a financial estimate that includes a Profit & Loss, Cash Flow, and Balance Sheet. These estimates should be interconnected so that changes to your income and expenditure in your P&L account automatically influence your other financial statements.
Broaden Your Customer Base & Retain It
During a recession, it’s more important than ever to stay in the minds of your customers. Therefore, when things are going well, be sure to regularly engage with your existing customers.
Send consistent, content-rich emails to your current customers. Check-in on past customers you haven’t heard from in a while. Post on social media and try to broaden your customer base with offers and discounts etc. This is the time to build solid relationships. Value their patronage, and assure them that you have their backs so that they have yours when you need it.
Build Employee Skills
It’s always a good time to invest in your employees and make them feel more connected to the business. In your good times, go that extra mile to help them so that they are there for you when called upon. Be ready to make adjustments to make your staff feel comfortable so that they adjust and work efficiently when the organization is going through a crisis.
Moreover, building up skills and cross-training staff during boom time can keep them in prime shape to help meet challenges and achieve the desired results when there is a downturn.
Create a Cushion for Emergency Needs
Create a business emergency fund with the help of a financial planner. This emergency cash fund or cushion should cover up to six months of critical costs, including payroll, inventory, and indispensable utilities. Additionally, consider different financing options before an emergency happens, such as appraising assets that might be used as guarantees, improving your business’ credit rating, negotiating with vendors beforehand who can offer credit, etc.
Recession-proofing a small business must be approached in a thoughtful manner long before an economic downturn hits. For recession proofing tips to help your business survive during a depression, contact WeKinnect Global Branding Agency, LLC. We’ve been helping small businesses flourish for over a decade, so get in touch today!