We cover five key things you can do right now to ensure that your business not only survives, but thrives, as a global recession seems increasingly likely.
Are we entering a recession? The latest ONS figures aren’t exactly encouraging. GDP fell by 20.4% in April – that’s a three times greater fall than during the 2008 financial crisis. For many, times will be tough, but it doesn’t mean the end. There are things you can do to protect the business you’ve built up.
To survive and even prosper in the coming months, diversification and sensible financial strategies will be key. We examine what a recession means for the state of business and how you can come through stronger below.
RECESSION ISN’T THE END OF ALL BUSINESS
Economic downturns are a part of life, and every successful business is likely to meet one at some point. A recession had been predicted for a while – in January, Forbes published an article warning of recession in the USA. While technically the definition of a recession requires two quarters of economic decline, it seems highly likely that COVID-19 will have brought the world into one.
Falling interest rates, bankruptcies and defaults, stock market downturns, lower wages and unemployment are all key indicators. But these certainly don’t mean that every business will fail. Understanding the market and the needs of your customers is crucial to success. And, along with solid financial planning and effective cost saving measures, you should have the tools to not only survive but thrive when we reach the other side.
Kristalina Georgieva, Managing Director of the IMF, announced that the outlook for global growth in 2020 is negative. She added that we’re entering “a recession at least as bad as during the global financial crisis or worse. But we expect recovery in 2021”. While times may be tough, they won’t last forever. It’s crucial that you consider ways you can recession-proof your business now in order to reach the other side.
PLAN YOUR CASH FLOW
One of the biggest reasons businesses fail is diminished cash flow. Ideally, you’d want enough cash to cover your business expenses for around six months. However, this may not be realistic, especially for a very young or small business. Don’t despair – there are other things you can do to maintain adequate cash flow.
Start by regularly planning your finances for every upcoming 13 weeks. Know exactly what cash you’re expecting to get and when, and mark this against the cash you’ll need to spend at the same time. Make sure this is balanced and feasible. If you know you’ll hit weeks or months where you need to make more significant purchases or you won’t be getting the money you’re owed for some time, consider what lending agreements, invoice finance or revolving credit facilities you have available.
Talk to your bank or seek other financial providers. If you need to secure a higher overdraft, ask for that in advance. Having these conversations early will only benefit you. Obviously right now we’re in the middle of a pandemic and risk appetites have changed. Luckily the Government has acted and has offered a range of loans, grants and funds to help support small business. If you’ve put off researching these until now, get to know how you could potentially benefit from the Coronavirus Business Interruption Loan Scheme.
Be frank with lenders and ask how your sector is viewed. Are you operating in an industry that banks and financial organisations perceive as ‘secure’? Take this into consideration when you stress test your business model. Have an honest look at multiple scenarios that could affect what you do, where you get your resources or supplies from to do it, and who you do it for. The greater the number of futures and possibilities you consider, the stronger position you’ll be in to protect yourself against the realities of those situations.
EXPAND AND ADAPT WHAT YOU OFFER
Focusing on what you do best and making sure you do it as well as possible should of course take priority. However, if there’s an opportunity to create something new to sell or offer, you should aim to diversify to mitigate risk. Things are changing around the world, so make sure you’re keeping up with what your customers need and want.
Don’t rest on your laurels: what was relevant and popular before coronavirus and before a recession may come to a quick end. Know your market, know your competitors, and work out how to offer something above and beyond that meets new needs. Examine your industry and think about what’s missing or what others are doing badly. Use these conclusions as an opportunity to strengthen your own position.
Maintaining strong relationships and dialogues with suppliers and customers is crucial at this moment if you want them to return when spending power resumes and risk appetite grows. If you offer a service, can you now create a product that your existing customers can use? For example, could you repurpose what you do in an online course? This is a great way to display your expertise while also boosting revenues and staying in your customers’ periphery.
KEEP TALKING TO YOUR CUSTOMERS
While many companies will be putting the brakes on their marketing, don’t give up now. With a less competitive pool, you have a greater chance of people heard. Your audience isn’t going away, so you shouldn’t either. And with lockdown accelerating a pre-established shift towards digital, you’re potentially talking to more people than ever before.
Be cautious and strategic about what you spend and where. With lots of people cutting back on marketing, use this time to make your voice heard. There’s more space for brand awareness if you keep your marketing efforts up, but be realistic about which platforms and what strategies work best for you. Don’t drop off the radar.
UPSKILL YOUR WORKFORCE
Now’s also a great time to invest in your team. At first this could focus on upskilling the people you currently employ. Is there any training that could benefit your employees and therefore the business? Take the time to work out what you’re missing in terms of skill sets or expertise and figure out how your existing people can improve.
It may not seem like the right time to go on a hiring spree, but there’s a chance you could find some top talent at the moment. Unfortunately there will be businesses who don’t make it through the next period. But this means that there could potentially be some brilliant minds who are part of a wave of redundancies. Identify what skills your business could use and go on the hunt for the people who could bring them to you.
Lockdown and working from home has unavoidably had an effect on morale and employee wellbeing. Some people will be working for employers who haven’t made the situation any easier, and may be looking to move. If you have the opportunities, don’t miss out on a prime time to build a great team.
USE THE SITUATION TO YOUR ADVANTAGE
It’s impossible to predict what will happen to business in the long-term, but we know the effects won’t last forever. Keeping credit or loan facilities available to you and maintaining strong relationships with your suppliers and customers will help you weather any storm.
Right now, innovation counts. With clear financing in place and good management of your financial strategy, strong leadership and clarified messaging, you’ll be in good stead to get through tighter margins and an uncertain short-term. Focus on the positive: this is not the situation forever. Plan long-term and be realistic about how to proceed.
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