Let’s be honest. With everything going on in Australia, if you’re not preparing your business for recession then you’re already behind the curve. We’re now facing our second recession in over a year, and it could be a long recovery.
But now is the time for sensible action, not doom and gloom. I wanted to share some of the best strategies for preparing your business to survive this. A drawn-out period of recession is something that your business can easily overcome with the right planning in place.
We’re always here to help you get through it. For now, here are 5 tips for recession-proofing your business.
1. Understand your cash flow inside and out.
Cash flow is what keeps your business alive – so don’t leave it up to chance, especially if you’re expecting hard times ahead.
Make sure that you develop a rolling cash flow forecast for your business so that you can always see at least 3 months ahead. This will you give you a much more comprehensive understanding of how your income streams and ongoing expenses really affect your bottom line. Basic accounting records like a profit and loss sheet just won’t cut it.
Read More: How proper cash flow forecasting can revolutionise your business planning
Forecasting your future cash flow is an essential starting point that will enable you to make more informed decisions about how you structure your finances and your business. It’s crucial to developing resilient strategies and planning for long-term growth.
Need to know which revenue streams to nurture? Or which overheads you can cut back on to save money? A rolling cash flow forecast will help you answer these questions.
2. Keep investing in development and growth. But be strategic about it.
During a recession, a lot of businesses will pull back on any development plans, even if they’re still going strong. It’s easy to see why – business owners are just trying to save money. But economic uncertainty shouldn’t stop you from investing in your success.
Instead, you should aim to continue to grow & develop your business. If you can get yourself into a stronger position now, you’ll fare much better if things end up staying slow for a while. But you should be strategic about how you choose to move forward.
For instance, diversifying your services or pivoting isn’t necessarily a bad idea, especially if you’re in a sector that’s been hit hard by lockdown restrictions. But you need to really think about whether it’s right for your business – it’s easy to lose money by over-experimenting or straying too far from your core competencies.
Whether it’s financial, digital or physical expansion, you should act now. The extra time and space brought on by a looming quiet period can be a perfect time to get things done. For instance, one of our clients runs a manufacturing business. Expecting to face hard times ahead, they recently invested millions into installing a new bottling machine for their production line.
Now they’re able to offer their product across the country, not just in a local area that’s potentially prone to lockdown stress. Their margins have increased substantially, and they’re in a much better position to weather a long recession.
3. Don’t neglect marketing. Instead, sharpen your focus.
When business owners start looking to cut costs, marketing is often the first thing on the chopping block. But when business is hard, keeping your customers or your clients engaged is more important than ever.
In fact, because everyone else is cutting back, the beginning of a recession ends up being a perfect opportunity to get your brand out there. Not only will your competitors be less active, but the cost of marketing services is also very likely to drop.
Now is time to rethink and refocus your strategy. Focusing on attracting new customers isn’t always easy when everyone is snapping their wallets shut. If you were focused on generating clicks, it could be time to focus on conversions instead. Of course, any changes you make must be measurable. You need to be using digital, and you need to track the data
Another smart move is to analyse your client base and identify who will keep coming back during tough times. Spending time, effort and money on maintaining these clients will generally pay off. Then, take a hard look at your existing marketing data – which of your campaigns are actually reaching the right audience?
It’s a matter of asking yourself the right questions. Who are your most valuable customers? Which of your services are people going to need more than ever? By identifying the ideal client profile and focusing your messaging around their needs, you’ll have a much better chance at keeping that steady cash flow coming in.
4. Invest in advice from an experienced business professional.
You don’t have to face a tough time on your own. Consulting a business advisor can make a big difference in how your business is able to cope with financial shocks.
Business advisors are experts at managing cash flow & structuring your business finances effectively. They’ll help you plan strategically for the future and guide you smoothly through difficult business decisions.
Business owners can often be very self-determined, confident that they can wing it through anything on their own. In reality, however, your business is much more likely to grow successfully when you invest in the guidance of an expert.
Read More: Not planning to seek advice? Here’s how much money you’re losing.
It’s important to be proactive. Don’t wait until you’re really struggling before you decide to work with a business advisor. Instead, you should invest in planning and recession-proofing your business while things are still going strong. It’s always better to be prepared in advance.
5. When it comes to financing, make sure you have options.
Don’t wait until you’re treading water to start thinking about business financing. Instead, evaluate whether you’re likely to need it, and then start evaluating your options for how and where you might get it.
If you and I are talking about the next recession, then you can bet lenders are talking about it as well. And one of the first things they’re likely to do is tighten lending standards. That means now is the perfect time to start figuring out what you can secure before things get fiercely competitive.
If you’re struggling to find something, you should consider Government assistance. To help with the economic stress brought on by COVID-19, the Federal Government has recently put set up a loan guarantee scheme for small businesses. The loans can be secured or unsecured, and the Government will guarantee up to 80%. Find out more about it here.
Either way, you need to take this time to get organised. Start gathering important documentation and preparing your financial data for a potential presentation. You should also address any outstanding issues with your personal or business credit score.
Just like many of these tips, it’s all about putting the pieces in place in case you need to make a sudden move later.
By following these tips and ensuring you’re financially prepared for a recession, you’re much more likely to stay resilient and continue to grow your business.
Our business advisors can help you develop a rolling cash flow forecast and make sure you implement these strategies effectively. Get in touch today for a free and confidential chat. We’re experts at securing your future business success.
If you need more advice on how to cope with the acute financial stress brought on by lockdown, you can also check out my article on how your business can prepare for surviving a lockdown. If your problems are urgent, then be sure to reach out to our team. We’re always available to help.
Disclaimer: This advice is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether this advice is suitable for you and your personal circumstances before acting on it.
