How to Recession-Proof Your Firm

When will the next recession hit? No one knows, but the decade-long run of good times can’t last forever. There has been much speculation recently in the press about the impending global crash and the inevitable fallout it will cause. 

Whatever its cause, a recession is bound to pose bottom line challenges. Can the pain be lessened? Yes, if you take certain steps to retool your business operations in advance of the slowdown. And the time to start those steps, say the experts, is now.

Winston Churchill said ‘never waste a crisis’,”  His advice is just as relevant when it comes to preparing for one. Don’t waste the time that still remains before the arrival of the next recession.

Waiting too long is risky. Shooting from the hip in a downturn often leads to business decisions that are compromises or worse.  Unprepared businesses are left with fewer options when tough times arrive, and those options are usually bad ones.

With the right preparation an economic downturn can be more of an opportunity than a problem, here's what you can do:

Plan for growth
So what to you do, exactly? Above all, avoid the common mistake of undisciplined cost-cutting.

Focus on expanding your business—not on just cutting back. As you approach a recession, strengthen your market position by developing initiatives to win new clients.

Selling more to your existing market--and expanding it—need not be expensive. You can likely ferret out new ways to get more from your current organisational structure. Further, rationalising your current resources often translates into a reduction of expenses.

Here’s another way to increase capacity: Leverage the digital revolution. A recent Harvard Business Review study found that successful companies tend to use funds from reduced operating budgets to invest in productivity-boosting technology.

Serve the new client

The modern client is very differently from previous generations. How do you adapt your firm to meet changing needs?

Serving the millennial means moving to mobile. Millennials are not paying attention to traditional marketing such as loyalty programs.  Their heads are in their phones. You need to ask ‘How is my mobile exposure reaching this client?’ Have I invested in a robust mobile site?'

Success means more than adapting an old website to mobile. The real holy grail is a purpose-built app that offers something special, maybe you can schedule services right on the app; maybe it can quickly and efficiently offer information vital to the end user. Think service, Millennials are into ‘do it for me.'

Control cash flow

A recession can send normal revenue rhythms into a tailspin. The first concern for any business anticipating a downturn is the smart management of cash flow.  Start to monitor more closely what is coming in and going out. Are turns slowing? Is your cash being locked up for longer periods?”

Make accounts receivable top of mind. Use your aging reports proactively, not reactively.  When receivables start to become stale, communicate early with clients. If there’s an issue, resolve it.

Trim fixed costs

While you’re monitoring those cash currents, consider your variable and fixed costs. The former tend to be related directly to business activity and there is often little fat to be trimmed. It’s the second that often holds the most promise. Identify discretionary expenses that can be cut.

You really have to watch fixed costs such as lease payments, depreciation and building related expenses. Many companies over the past decade have succumbed to the temptation to increase fixed costs in anticipation of higher revenues. The problem is that those costs will not change very fast as your income starts to go down. In a declining market, fixed costs tend to eat into the bottom line.

Cutting fixed costs can spark dramatic increases in profit.  If you can increase your sales while holding fixed expenses constant, a good portion of the increased revenues will flow straight to the bottom line.

Retool and recharge

While no one is happy when the economy softens, a downturn can serve to reveal opportunities for making your business stronger and more profitable. Turn hard times into an advantage.

View the recession as an opportunity, not a threat, take the time now to ask how you can expand your business when the downturn arrives, even though you will not be making as fat a margin. What are the services you can get into without too much change? How can you show current and new clients you are willing to better meet their needs?

Above all, be flexible.

Good businesses make money in good times and bad, while there is no recession-proof business, the winners are those who adapt best to challenging conditions.

 

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