Even though not pleasant, a recession is a part of the natural flow of the ups and downs of the capitalist economy. Market fluctuations cause periods of rapid growth and sometimes business slows down or there’s no progress at all. The word “recession” is enough to make some business owners anxious and even terrified.
Who wants to experience a tight cash flow and sales slump?
While it’s easier to fixate on the negative sides, recessions are not only about inevitable bankruptcy or disaster. In many cases, prepared businesses manage to use these uncertain times to find growth opportunities. As there’s currently about a 62% chance of a recession in the next 12 months, now is actually a perfect moment to start implementing effective strategies to prepare your business.
What is a recession?
What is viewed under the term “recession” can vary in different countries since there are a lot of economic factors to take into account. But in a general sense, it’s a phase when economic activity slows down significantly during an extended time period.
Recessions are impossible not to notice, you’ll see GDP drops, higher unemployment, lower real income, and decreased sales across both wholesale and retail sectors, and many other factors. If the economy declines, everyone feels the consequences – businesses, consumers, and governments.
How a recession may influence your business
Recessions influence businesses differently and to a different extent, so it’s hard to forecast specific effects on individual companies, even those operating in the same sector. Of course, companies that provide non-essential or expensive products or services (tourism, real estate, automotive) are more vulnerable than others.
The most common and noticeable change is a decrease in consumer spending. Since people tend to be more frugal during tough economic times, businesses, if they do not provide essentials like food or healthcare, will see a sharp decline in sales. It will obviously lead to revenue drops and companies with fixed rental fees and salaries can start experiencing financial struggles.
Lower demand also causes excess inventory, especially in manufacturing, so companies may slow production or even pause operation to avoid accumulating too much stock. In turn, banks hesitate to lend money, which makes it harder for businesses to stay afloat. All these factors add up, increase uncertainty, and force businesses either to adjust quickly or face bankruptcy sooner or later.
Practical tips to prepare your business for recession
Unfortunately, there’s no uniform standard to recession-proof your business as it’s impossible to predict all the risks. But having some strategy and a good plan can help you defend against the unexpected even when you have to deal with tough economic conditions.
That said, here are some practical recommendations that may help your business prepare for potential challenges and survive during economic slumps:
Review your business
Preparing for a recession should start with a “health check” of your business’s current state and operating costs to determine what’s working well, where your money is going, and what brings the most revenue. It will allow you to identify areas where you are overspending, maybe it’s expensive software subscriptions you barely use or over-ordering more goods than necessary. You may find lots of possibilities to cut costs when cash flow is tight without impacting your day-to-day operations.
Reduce business costs
Cutting costs is often the most immediate and obvious step businesses should take when preparing for a recession because profits are vital for long-term survival. Since customers spend less, your profits will decrease too. To stay abreast, you need to reduce spending.
Once you have the information about financial ins and outs on hand after reviewing your business, you’ll see a list of expenses you can eliminate. For example, you can save by switching to more affordable software or even using free tools, renegotiating contracts with vendors and suppliers, or moving to a smaller place. Don’t be afraid to try new software or reach out and ask for discounts, extended payment terms, or other cost-saving options. Every saved penny will give your business more breathing room during lean times.
If costs are still too high despite cutting non-essential expenses, layoffs can be an inevitable step. Staff dismissal is never an easy decision, but sometimes it’s the only way to save up on expenses. If the layoffs are unavoidable, approach them thoughtfully and openly communicate the reasons why these measures are necessary.
Lower inventory levels
Excess inventory can cost you a lot of much-needed working capital, as it ties up cash in products that may take longer to sell. When economic conditions are uncertain, it’s wise to avoid overstocking or making large bulk purchases. These extra items add unnecessary expenses for your business as they still require storage, maintenance, and employees who will take care of them.
Making smaller, more frequent orders or purchasing only essential items that have steady demand keeps cash in your business and reduces the risk of having too many unsold goods.
Focus on your best sources of revenue
Another smart move that we’ve already touched on a bit is to focus on the products and services that have the highest demand and offer the best profit margins. Rather than trying to promote and sell everything you offer, analyze your inventory or service list, identify best-sellers, and concentrate all your efforts and energy on them.
When you reduce inventory on slower-moving items and pay more attention to the top-performing ones, you’re keeping your business profitable without overcommitting resources to things that aren’t generating significant returns. This approach helps you continue having a steady income and still providing customers with what they want and need.
Have a cash reserve
A cash reserve acts as a financial cushion or emergency fund that can cover essential expenses like rent, payroll, and supplies if sales slow down. If you don’t already have one, start by setting aside a small portion of your monthly profits (5-10%) and gradually grow it until you have a fund large enough to cover at least 6-12 months of operating costs.
It may take some time, but these savings provide a huge advantage when unplanned expenses occur. If you need an urgent repair or face a bad sales month, you won’t have to look for costs or cut back on necessary spending.
Create a low-cost marketing plan
Expenses on marketing are among the first to be cut when a recession starts. Yet, it is not the best approach as you need to keep your business visible to your current and potential clients. As an alternative to fully stopping your marketing initiatives, consider creating a low-cost marketing plan that focuses on high-impact strategies. You can still engage with your customers on social media, share updates, and promote your products there.
Email marketing is also a budget-friendly marketing option to remind customers about your business during tough times. Sending emails with regular newsletters, special discounts, or useful information keeps your company on top of the customers’ minds, builds loyalty, and encourages them to make purchases.
All these initiatives are low-cost compared to traditional advertising methods, but if done consistently, they may provide high financial returns, especially if you already have a strong customer base.
Nurture existing customer base
Retaining customers is always cheaper than gaining new ones. Existing customers already know and buy from your brand and nurturing these relationships can help keep sales steady. Personalized communications, sending thank-you messages after purchases, or social media interactions – all these actions are simple and do not take a lot of time but show your customers that they are valued.
On top of that, these regular interactions help you gather feedback and gain insights into how you can improve your product or service. The better you’re able to meet their needs, the stronger your relationship with them will be, which will allow your business to last through any economic ups and downs.
Use EspoCRM to your advantage
As we’ve already mentioned, affordable technological solutions can increase your resilience during tough times. When budgets are tight, tools like EspoCRM that streamline operations, enhance customer relationships, and provide key insights can strengthen your position in an uncertain market.
The platform provides a lot of free features that can be used to organize your customer data, track interactions, capture and convert leads, manage your sales, support and even marketing. You can quickly view when a customer made a last purchase, what they bought, and even follow up with a personalized message to motivate them to come back. When you notice certain customers regularly making repeat purchases, you can segment them into target lists and send them email campaigns with personalized offers or loyalty rewards to encourage even more frequent purchases. Support functionality, for its part, will help respond quickly and resolve issues with products or services before they become real problems, which will improve customer satisfaction.
One of the great things about EspoCRM is that you can start with the essentials and gradually add more advanced functionalities to suit your specific requirements without breaking the bank. The software has official extensions with tools for reporting, inventory tracking, project management, workflow and BPM automation, VoIP telephony, Google and Outlook integrations. These features can help to get deeper insights into customer behavior or sales performance, reduce errors, automate operations, save time, and what’s more important money without needing to invest in multiple and often expensive platforms.