Recessions are a part of economic life, but they are difficult to predict in advance. That’s why the best time to develop a plan is while things are looking up. By making wise choices while the economy is stable, you can prepare for the uncertain future.
Here are nine ways to prepare your business for the next recession.
1. Pay Off Existing Debt
Existing debt looms like a dark cloud. When a recession hits, those obligations remain regardless of your profit and loss margins.
Design an aggressive plan for paying it off as soon as possible. You’ll have an easier time finding investors and acquiring a line of credit if you’ve paid off your existing debt. Start with the higher interest loans that will compound faster than others.
2. Understand Your Numbers
To prepare your business, you must understand your financial numbers and projections. Create a detailed plan of projected income and expenses each year. Evaluate efficiency — where is the money going, and how can you increase your return on investment?
Discover what aspects drive the most value. Are there areas that could be grown and improved? Keep an eye on your financial statements and review updated reports regularly.
3. Expand Your Customer Base
A recession-proof business model utilizes multiple revenue streams and an expansive customer base.
A business that operates in nine countries has greater market diversity than those that operate in the U.S. alone. By establishing a diverse collection of clients, you reduce the risk of losing all of your revenue during a recession.
Look into new client acquisition channels to ensure a steady growth rate during economic decline.
4. Cut Expenses
Look for ways to cut expenses in your business. Can you change suppliers without sacrificing quality? Are there services or perks you could reduce? The key is to trim your costs without losing value.
When faced with a difficult situation, know what you can — and can’t — live without.
5. Set Aside Money
When a recession hits, you’ll be better off relying on savings before taking on more debt. This could be a problem if your cash reserves are empty. Start setting aside money now, while your profits are steady.
6. Manage Inventory
If you keep inventory low, your money won’t be tied up in stock when a recession hits. Liquidating assets can be complicated during economic decline. The solution is to manage inventory costs without inconveniencing your customers.
Review your system to determine if you are ordering too many items. Perhaps you can outsource part of the process to reduce inventory requirements.
7. Diversify Your Marketing Channels
Look to diversify your marketing channels to draw in new clients and promote your company.
Diversification means your efforts have a greater reach, and you can gain new customers while continuing to engage your regulars. It will help your business become more resilient because you’ll be gaining exposure from multiple channels.
8. Establish a Growth Mindset
The saying mind wins over matter holds some validity in the business world. You need to establish a growth mindset to foster innovation and expansion. You must lead by example so your employees believe in the mission and future. When times are uncertain, you need a staff who believes the company will succeed.
9. Think About Credit
What’s your credit score? Did you know your business credit score is separate from your personal score? Evaluate ways you can increase your credit scores so your business looks dependable to lenders.
Consider opening a line of credit — it’s easier to launch before a recession hits. If you decide to start a line of credit, only use it for emergencies to keep debt low.
Preparation Is Key
Preparation is the key to surviving a recession. Focus on these nine ways to ready your business for uncertain financial times. You want to employ strategies that will land you on top and allow your business to continue growing even during the most challenging economic periods.