y Tyson Yoon – Sr. Director Of Business Development at inDinero
Being prepared for a recession does not take complex financial know-how. Rather, the basic fundamentals of running a sound business are the best means of preparing for a recession. It’s easy to play fast and loose with your financials during an economic boom, but that risk may come back to bite you if the economy takes a downturn.
Here are five ways you can prepare for a recession.
1. Paying Down Debt
The most direct way to ensure your business doesn’t fall apart during a recession is to get rid of as much debt as you can while you have the income to do so. Debt is a business killer in recessions and is the easiest way to end up insolvent when sales dry up.
After accounting for what portion of your profits you’re willing to sacrifice to pay down your debts, look into which of your debts allow you to pay in advance without a penalty. Some debts that do incur a penalty for advance payment may be worth taking the additional fee if it gives you more breathing room during the profit crunch of a recession.
2. Treating Workers Right
Recessions often come with labor unrest as workers feel betrayed by a system that they were promised would provide them with a decent income. Treating workers with dignity is the best way to ensure they don’t demand massive wage increases while your business is struggling.
One way to meet employee expectations is to have clear policies outlining duties and responsibilities both for your employees as well as for yourself. The best way to ensure they are satisfied with your policies is to generate them from your employee’s suggestions.
Often, the experience employees bring to the table can add to policies and procedures in ways that make them not just more worker friendly, but also more efficient. Your business will run better if employees receive training to do their job well rather than gleaning tips and tricks in their initial months from coworkers.
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3. Diversifying Your Portfolio
Whatever your business does, now is the time to expand your horizons. If you have financial investments, you should branch out into new and safe assets to hedge your bets. Now would also be a good time to look at alternatives to your suppliers in the event that any of them don’t weather the financial storm of a recession.
A lot of business owners have an attachment to their manner of doing business almost to the point of a ritual. Actively seeking out new ways of doing business and testing possible changes to your business model will not only help you adapt during the turmoil of a recession, it will also ensure that your business is running as efficiently as it can be.
4. Finding Consumer Needs
One of the best ways to recession proof your business is to offer a product that consumers rely on. Find ways to ensure that your product mix will be in demand regardless of economic conditions and hammer that message home to your customers.
Even if you think your product is a luxury, for many customers it is a convenience they can’t do without. If you can communicate to customers why they need your product, you will be able to hold onto more of them during a recession.
5. Building Brand Loyalty
A successful business has customers with an emotional attachment to the brand. Now is the time to invest in marketing techniques to ensure that customers will insist on choosing your brand over cheaper alternatives, even when times are tough.
Loyalty programs take several forms. Many businesses offer simple paper cards for return customers to track their purchases towards a free item. (Coffee shops do this a lot.) Others keep customer purchase data in a database to provide them with rewards.
In addition to self-managing a loyalty program, there are several prefab options as well. Most credit card companies in the US have rewards programs that businesses can tap into. Diners Club, owned by the credit card company Discover, has been a popular loyalty program for decades.
Recession Planning for Businesses
As you can see, this advice is no different from any advice you’d receive for running a sound business. Keep your costs low, keep your workers happy, keep customers coming back, and don’t put all your eggs in one basket.
Now is the time to be deliberate about your financial decisions. According to the traditional definition, the United States is already in a recession based on two consecutive quarters of GDP decline. This means that fewer things are being purchased in the economy. If this continues, expect to see declines in your sales.
Where Do I Get Help Preparing for a Recession?
In many ways, preparing for a recession is easier said than done. Much of the available advice relies on knowing the correct moves to improve your financial position.
However, most business owners did not get into their line of work because they are financial wizards. They did it because they have passion for a product that they want to bring to their customers. So who can business owners turn to for financial guidance?
Since 2009, inDinero has been helping businesses of all sizes across the United States make money moves to weather the storms of recession as well as grow by leaps and bounds during good times. We provide bookkeeping, accounting, tax, and fractional CFO services to ensure that your business is prepared for any financial eventuality.
Get prepared for the coming recession with inDinero. Contact us today to schedule a consultation.