Over the last few months, billionaires from Elon Musk to Jamie Diamon have been predicting a recession. These warnings have only multiplied since the Federal Reserve decided to raise interest rates by 75 basis points.
Business leaders and major financial institutions have since echoed these earnest warnings about an upcoming recession for the end of this year or in 2023. For most business owners, recession is a scary word. Those that lived through previous recessions remember the disruptions and challenges that ensued. As our industry has grown, the number of new owners without this perspective has risen, as well.
Thankfully, companies still have time to gird themselves for this potential future. Here are five actions you can take to mitigate your risk during a recession.
Many companies go out of business not because they are unprofitable, but because they lack enough cash for daily operations. In a seasonal industry like ours, managing cashflow is already tricky. In a recession, your business may decline, customers often tend to draw out payments and suppliers tighten terms only increasing the day-to-day challenges. Smart owners know the importance of being prepared and having access to capital.
Approach your bank now for an increased line of credit. If the answer is no, then shop your banking relationship around. Small local business banks tend to be more willing to learn and understand the challenges and particulars of your business than the large national players. Do not forget to investigate online credit loan providers. It is important that you do this now. It will be much harder to find available capital when a recession hits.
Develop a Strategic Marketing Plan
Often the gut reaction for owners during a recession is to cut all discretionary spending and erroneously, some think that includes marketing. Businesses must keep their competitive edge, even during a recession and a strategic marketing plan helps you focus where to concentrate your resources for the greatest impact. Customers typically spend less money during tough economic times, but they still spend it. However, they are far more discriminating in deciding whom to spend it with. You need to be the recognized, trusted expert they turn to. You must be top of mind. Your marketing efforts may include advertising, sponsorships, events, social and traditional media placement, and more. Make sure you target your actions to reenforce key differentiators.
Hard times cause companies to tighten their belts. Analyze your spending and understand what you need vs what is nice to have. In the end you may find that you need to freeze pay and/or 401k contributions or even eliminate positions, defer capital spending projects including putting off the purchase of new trucks and equipment. Look at renegotiating contracts with your suppliers if possible and identify areas of unnecessary spending that you can cut without too much pain.
Increase Customer Loyalty
When a recession hits, it is easy to focus on acquiring new customers but, be careful not to neglect your current ones. It is far more expensive to find and develop new clients then it is to keep your existing ones. Focus on customer loyalty and retention. A loyal customer is also more likely to refer friends and additional business opportunities. Thank your customers for their business and be sure to make it easy for them to do business with you. Be responsive and communicative.
Current supply chain and logistical issues are hard. A recession will only make these worse as suppliers face their own challenges and respond by reducing inventories and layoff their labor. Start now to work with and communicate openly with your suppliers. Understand their issues and cooperate on the best way to go forward for both of you. Plan as far out as possible, make sure to account for increasing material and labor costs for upcoming projects. Take the initiative and communicate expected timelines with clients.
Knowing a recession is on the horizon gives you time to prepare. Do not wait until it is too late. These steps make good business sense and will make you stronger and more profitable, even without a recession. However, the list is not all encompassing, so keep an open mind, be initiative-taking in your preparations and remain agile.
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