As a business owner, there’s nothing worse than slipping into the red despite doing all the right things. Running a company doesn’t put just your salary and future on the table, it also puts the livelihoods of everyone you employ at stake.
Whether you’re worried the next recession is just around the corner or that your specific industry is headed for rough waters, there are practical, down-to-earth steps to weather the next economic downturn as if you had years of forewarning. If the recession never comes, that’s okay; everything we recommend in this article works in bull markets too. Here are three easy steps to get started.
Step 1: Define early warning signals
There’s rarely an excuse for being caught off guard by a tough business season. Real estate firms will see inventory go up and sales go down with time to adjust. Auto dealers will experience less demand for new vehicles while used cars become more popular. Although there are thousands of variables in play, these trends are clear indicators that something is wrong, and you shouldn’t assume they stem from internal problems or are unrelated to a macroeconomic shift.
Solidify which business metrics indicate something worse than a run-of-the-mill bad month and track them constantly. Predictive analytics apps provide easy and economical ways to ensure that the tell-tale signs of a downturn are brought to your attention as early as possible.
Step 2: Create your DEFCON 1 plan
The numbers are in and you’re certain tough times are ahead — what’s the first thing you do? If there isn’t an answer to that question within arm’s reach, start taking notes.
You need a contingency plan that cuts costs and secures revenue quickly. The items on that list should be last resorts, such as:
- Spending less time on certain clients – In a recession, losing business is inevitable, so consider spending less time on your low-value clients if it means keeping the cash cows.
- Getting tough on past-due clients – When you can afford it, a little forgiveness goes a long way. But if you don’t know when financial relief is coming, your accounts receivables need to get lean. Implement a watertight collection policy and never sacrifice your company for humanitarian reasons. Remember, your business should come first.
- Cutting products/services – During good times, it may be worth it to stick with experimental or outdated offerings. During bad times, you need to trim the fat. Even if a product or service at the bottom of the heap is performing adequately, the opportunity cost of propping it up with resources that could be used elsewhere is too great.
Anything you choose to include in your DEFCON 1 plan needs to be organized for swift deployment. During a recession, every day that your team operates with clear focus and direction is a competitive advantage over slower-moving and less agile competitors.
Step 3: Implement strategies that work in any business climate
Closely tracking your early warning signs and finalizing your recession plan gives you some breathing room to work on improvements that require more time and deliberation. These are the action items that may be motivated by preparing for a downturn but will stay in place regardless of how things pan out.
A great example is an empathetic customer service team. That’s something you want to maintain in any business climate, but it’s exponentially more important when your customers are hurting just as much as you are.
Another thing to consider is cutting costs with outsourced services. The Prosum team offers outsourced IT support, virtual chief information officers, and recruitment for technology positions, but this trend extends far beyond the IT sector to include financial services, healthcare providers, and more.
Now is the time to prepare
Many business owners have never experienced a recession. When they do, they’ll need a unique set of skills that no one should have to learn in the heat of the moment. Alternatively, those who have weathered a recession should ask themselves: Is my business ready to deal with it again?
For all our business advice, managed IT services are what we’re best at. If you want help recession-proofing your business with automation, disaster recovery planning, or anything else technology related, send us a message today.