During the great recessions of 1980, 1990, and 2000, 17% of the 4,700 publicly-traded companies fared badly, according to research. Many went bankrupt, while some smaller companies were replaced by bigger ones. 9% of the companies in the research study flourished, outperforming their competitors by more than 10% in sales.
According to the study done by the Harvard Business Review, those top-performing companies did not just survive during the Great Recession, they outperformed their competition, and their earnings continued to grow steadily throughout the tough times.
It was found that they succeeded because of their excellent management in handling their debt, business decisions, workforce, and digital transformation. So, while we may be facing an economic downturn currently, how can you turn your business into a successful endeavor or keep it afloat during these challenging times?
What is an Economic Recession?
The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, which lasts consecutive quarters and is visible in the real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales.
Usually, the decline in economic activity affects small businesses and entrepreneurs who are trying to keep their businesses afloat during times of economic hardship. Often, economic growth slows down during this time, which may cause a business owner to have a financial crisis.
For those who rely on the sale of products or services to pay their personal income, a recession or even depression, like the Great Depression, can cause interest rates to reach the sky as the stock market declines.
This not only affects the United States, but it may also be across the globe. A global recession affects many things worldwide, while a domestic recession affects things like the unemployment rate and the real GDP (gross domestic product). As the GDP declines, more and more businesses struggle to stay alive.
A Step-by-Step Guide to Surviving an Economic Recession
Step One: Determine where you need to make changes in your small business.
Usually, there are two ways to make significant financial changes in one’s business. One is to reduce expenses, and the other is to increase income.
Alternatively, you can increase the cash you bring in by collecting on accounts receivable that are due to you, or you can work with vendors to reduce your accounts payable (what you owe to others).
Many companies are happy to work out payment plans if you are struggling to make ends meet. They would rather collect some of the money they are due rather than to have you go bankrupt and not collect any of the money you owed them. Likewise, you can work with those who owe you money to collect some of the money due to you rather than collect none.
Ask yourself the following questions as they relate to your small business:
- Are there payment plans you can set up with your accounts payable vendors?
- Can you collect on some of your accounts receivable you are waiting on?
- Do you need to hire an accountant to help you manage your books?
- In what ways can you restructure the accounting of your business?
Step Two: Look at the details that will make a difference for your business.
Now that you have taken a look at your accounts receivable and accounts payable, you may be able to find some new ways to increase your cash flow. As you make changes, you will want to think about your other expenses. What can you cut back on?
Ask yourself the following questions as they relate to your small business:
- What variable expenses can you cut back on?
- Can you separate the essential expenses from your non-essential expenses?
- Can you reduce your inventory costs if you are selling fewer products?
- Are you able to reduce some of your variable costs like utility bills?
- Can you refinance your business location’s rental costs with your landlord?
Think about the many ways you can reduce costs and expenditures that you normally are frivolous about. For example, if you are selling fewer products, can you reduce the amount of money you are spending on inventory? If you do not need all the products, you can temporarily reduce the money you are spending on supplies, ingredients, and other product staples.
Step Three: Get creative in the ways that you make changes for your business.
While it is a good idea to cut back on the things you do not need right now, it’s also a smart idea to continue to put money toward marketing costs. You want to promote your business in all the ways you can, so your business will increase profits and customers. As you look at new and exciting ways to do this, get creative.
Think about what your customer wants, and focus on that. If you need to implement a new marketing strategy to jump start things in the right direction, go for it. You never know what will reach a new target audience until you put yourself out there and try.
Ask yourself the following questions as they relate to your small business:
- How can you reach out to potential customers in new and exciting ways?
- What do your clients and/or customers want?
- How can you market your business via word of mouth?
- How can you better understand what your customers need now?
Step Four: Make sure your changes are in alignment with your overall company objectives.
The most important thing you must keep in mind when making changes is what makes a difference to your business. What is most important to you? Examine your objectives, mission statement, and goals to make sure they align with how you represent your business.
Ask yourself the following questions as they relate to your small business:
- What are the objectives, mission, and goals of your business?
- How do your current goals match with your initial company goals?
- Are you still aiming to reach your company’s mission statement?
- How can you revamp your business plan to make it more attainable right now?
Frequently Asked Questions
How can my small business survive the recession?
There are many things you can do to improve your chances of seeing success during an economic recession. One thing you can do is improve your marketing techniques. Reach out to a marketing specialist for more advice on how to best market your business during a recession.
What business survival strategies can help me during a recession?
One thing you can do during a recession is to cut back on variable expenses. If you are a baker but are not selling as much bread as usual because of the recession, you may want to cut back on your purchases of the ingredients used in the bread since you are not using it as much. You may want to use those funds to market your business, instead.
How can I survive as a small business during an economic depression?
The most important thing you can do is to trust in your mission statement and goals. You may need to adjust them to meet your customers’ new demands, but overall, understanding what your customers need will greatly lead you toward further success. Adapt with the times, and you will find a greater chance at succeeding than if you make false assumptions about your customers.
During a business recession, what survival techniques can best help me?
It really just depends on your business and in what areas you need the most help with. If you have a small business, you may want to collect on some of the outstanding accounts receivable you are expecting. Speaking with your customers about their outstanding bills may help you with your cash flow problems.
What should you not do during a recession?
Do not go overboard in purchasing supplies or inventory during a recession. You want to keep your variable expenses to a minimum because that is a cost you can control. For example, if you make toys for your toy store, you may want to focus on selling your current inventory rather than on buying supplies to create more toys. It’s important to manage these things in terms of how the economy is going.
To Sum Things Up…
Are you struggling to keep your small business alive during a recession? What survival strategies do you feel have best helped you? If you need help during this economic recession, please feel free to reach out to us for a free consultation.
We offer more than tax assistance; we do business consulting and can help you in many ways. Plus, if we don’t have the answers, we will find someone to help you out because we aim to please! Whatever your business needs are, get in touch with us to see how we can best assist!
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