With the economy experiencing significant downturns in recent months, it’s no wonder that the question of whether a recession is coming has been on many business leaders’ minds.
As most economic cycles follow a predictable pattern of growth and expansion, followed by retraction, we will likely see further contraction in the coming months.
With customers tightening their spending and competition intensifying, these economic downturns can lead to trouble for businesses of almost any size and industry; decreased demand, reduced sales, and financial instability can make it hard for companies to stay afloat.
Fortunately, there are strategies that businesses can use to avoid the pitfalls of a recession and come out even stronger than before.
Here are our top 7 tips, supported by research, for businesses to weather the storms of a recession:
Build up cash reserves
Cash is king during an economic downturn, so it’s crucial to ensure you have enough cash to cover your expenses. To do this, you need to keep track of both your income and costs and minimize unnecessary expenditures. Additionally, consider looking into debt refinancing or other financing options to free up additional capital if necessary.
Financial literature has long recognized the importance of businesses storing cash until the recession passes. According to research by the International Monetary Fund, organizations that built up a substantial cash reserve before a recession were more likely to survive through difficult economic times. Additionally, surveys have shown that a well-prepared war chest of resources significantly increases firms’ ability to make sound business decisions and operate at peak performance during a slowdown.
These studies showed that cash reserves allowed companies to continue operations, maintain payrolls, pay bills, maintain steady supply chains, and even conduct M&A deals. Ultimately, businesses with adequate funds are best positioned to weather a recession effectively.
Accelerate your sales
During tough times, investing in new markets, hiring talented teams, and reviewing the demand for each product or service become paramount. To increase sales effectively, companies should look at their customer base and assess how they can reach out to more potential clients. Consider your marketing methods, channels, and even messaging while striving for efficiency. Look at bringing in more talent- the right executive team can drive sales, increase efficiency, and create a positive culture that attracts more customers and employees. Furthermore, it is also beneficial to revamp current packages and look into leveraging partnerships or collaborations with other related organizations that may have access to relevant target audiences.
A 2019 study conducted by McKinsey & Company found that companies which increased their sales efforts amidst the global recession of 2008-2009 developed greater resilience during the economic fallout relative to their less aggressive counterparts. Moreover, another study by Harvard Business School revealed that firms that had invested in technologies over time tended to “accelerate” faster than those which prioritized cost reductions.
Although accelerating sales isn’t necessarily a foolproof method of shielding against a recession’s effects, it is worth considering, especially if history indicates what is to come.
Diversify revenue streams
Relying on a single product or service can be risky during a recession. By diversifying its revenue streams, a business can spread its risk and generate income from multiple sources. Consider business expansion (or optimization) that looks at how to best reach new markets, grow revenue, and lower risk, even during a recession.
Recent research has shown that diversifying revenue streams is one of the most effective business strategies to counterbalance the negative impacts of a recession. Companies with multiple types of revenue, such as products, services, and subscriptions, are better protected from significant drops in sales and income during challenging economic times.
Additionally, the source of income can be tailored to accommodate the changing market; if one type of service is no longer viable, another can take its place. This strategy also adds extra layers of protection against cascading losses since it spreads risk across multiple sources instead of providing all revenue from just one or two areas.
As businesses evaluate their plans against a backdrop of economic uncertainty, diversifying their sources of income is becoming more accepted as an effective way to maintain profitability throughout economic cycles.
Focus on customer retention
Customers may be more price-sensitive during a recession and less likely to make new purchases. Businesses can retain existing customers and increase customer loyalty by focusing on customer retention and providing excellent customer service.
Research over the past decade has increasingly pointed to customer retention as a highly effective strategy to focus on during recessions. Customers often provide stability when other sources of revenue may be unstable. Multiple studies have found that existing customers spend far more than new clients and have much longer lifetimes with the company. Additionally, larger retained customer bases often lead to improved brand loyalty and increased natural referrals for new customers.
Given these benefits, focusing on customer retention can help companies stay afloat during difficult times, making it an invaluable source of stability that should not be overlooked.
Control costs
During a recession, controlling costs and avoiding unnecessary expenses are essential. Businesses can reduce costs by negotiating better deals with suppliers, optimizing their supply chain, and cutting back on non-essential expenses. Consider reducing your fixed overheads such as rent or salaries if necessary. Reducing overheads can also free up additional capital, which can then be used for other purposes, such as investing in new technology or equipment that will help improve efficiency and profitability over the long term.
According to experts, reducing operational expenses and capital expenditures and focusing on creating new sources of income can help an organization weather any economic downturn. Research has also found that the ability to engage in effective cash-saving practices can predict how successful a company is likely to be during recessionary times. Furthermore, leading organizations have conducted research demonstrating their focus on cost control as they move through periods of economic uncertainty.
By controlling costs, businesses will be better equipped to ride out financial market turmoil to safeguard profits and maintain the continuity of operations.
Invest in marketing
During a recession, businesses may be tempted to cut back on marketing expenses. According to Nielson, “most brands are already under-spending—depressing their ROIs by a median of 50%— so any additional cutting of media expenses could only serve to reduce ROI further, at a time when brands need to maximize profits most.”
Investing in marketing can help companies to stand out from the competition and attract new customers. It is, though, essential to adjust your marketing strategies during a recession to ensure that you reach the right audience with the right message at the right time. Try focusing more on digital marketing and social media campaigns instead of traditional advertising methods like television or print ads to maximize your reach while minimizing costs. Additionally, consider offering discounts or promotions to incentivize customers without sacrificing profits too much.
Research suggests that marketing can be a safe haven for companies during a recession. Investing in marketing can help brands stay ahead by driving demand and maintaining or even increasing sales during tough economic times. Studies have also demonstrated that organizations that maintain their marketing budgets during a downturn are well placed to take advantage of the opportunities available when the recovery starts. This gives companies the edge over competitors who cut back on their advertising presence during difficult periods.
Those protecting their spending typically monitor higher customer retention and market share growth when conditions improve. Research is beginning to point out the necessity of investing in marketing to avoid a fall during an economic slump.
Stay agile and adaptable
Businesses that are able to quickly adapt to changing market conditions and customer needs are more likely to survive and thrive during a recession. Staying agile and adaptable can help a business pivot to new opportunities and avoid being left behind.
Multiple studies have reported that businesses that remain vigilant and open to opportunity are usually most resilient in difficult times. Additionally, this same research indicates that when a company can successfully navigate a period of deep recession, they tend to emerge with even more market share than before.
Therefore, staying agile and adaptable not only prevents failure during tough times but also positions companies for success afterwards.
Recessions can put immense pressure on businesses large and small alike; however, by taking proactive steps, companies can survive even the worst economic downturns and come out stronger than ever. By following these strategies, you should be able to survive and even thrive despite challenging economic conditions.
