10 tips to recession-proof your business

Economic change happens, and when there is an economic downturn, it can be challenging for start-ups and small businesses, with customers spending less frequently.

Global events, economic market instability, and other trying economic conditions can make running a successful small business challenging.

Despite challenging market conditions, small businesses can build financial resilience in preparation for future growth.

The best way to safeguard your business is forward planning.

By looking at the worst-case scenario you can put in place contingencies should the economy take a turn for the worse.

This means your business can handle unexpected economic shocks, such as customers being unable to pay or suppliers going out of business.

How to build business resilience during a recession

1. Keep tabs on cash flow

Start-ups are less likely to have a cash buffer than larger businesses, leaving them more exposed if there is less cash coming into the business than leaving.

To allow for this, be extra diligent in monitoring cash flow.

This can help you take prompt action if the situation demands, such as cutting back on expenses or chasing up late-paying customers.

Read our guide on how to manage and protect cash flow during difficult times.

2. Manage debt

Keep your debt level as low as possible.

High inflation in a recession can push up interest rates on business loans, making it more expensive to service the same level of debt.

If you have extra funds available – or if your business is growing – consider using them to pay off high-interest debt.

3. Create an emergency cash fund

A cash cushion can be a useful safety net for start-ups.

Aim for an emergency fund that can see your business through six months of essential costs, including payroll, inventory, and utilities.

To get started, look to secure earlier payments for money owed to your business and consider paying bills towards the end of the period when they become due.

Consider putting surplus cash into a business savings account.

A business loan can be an option if your start-up needs capital to get off the ground – check if you’re eligible for a Start Up Loan.

4. Explore additional revenue streams

Developing multiple revenue streams can help start-ups survive in the face of changing market conditions.

Passive income can come from many sources including leasing unused storage or workspace, white-labelling your products, or providing coaching and consulting services.

If one of your revenue streams is adversely affected by a downturn in trade, additional avenues may help to keep the money coming in.

5. Focus on customer relationships

According to Harvard Business Review, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.

Target your existing customers for repeat purchasing and ensure they stay close to your brand.

Loyal customers cost less to attract, may be more likely to purchase, and can recommend your business to others.

6. Increase the value of transactions

Encourage customers to spend more with your business, identifying services and products can increase profits through cross-selling and up-selling.

Cross-selling is where you encourage customers to buy related services and products, such as selling fries as a side order for a hamburger.

Upselling is where you encourage customers to buy more, such as choosing a larger-sized portion of a takeaway for an additional cost.

Read our guide on how to price your products and services.

7. Optimise inventory

Excess inventory can be a financial burden for a start-up.

Large volumes of stock may require additional storage space, which adds to business overheads and could be left unsold if customer confidence and spending decrease.

Consider investing in an inventory management system, keeping tabs on stock levels, and ordering just in time to fulfil customer orders.

8. Downsize if necessary

You may need to cut costs If your business is affected by a decrease in sales or faces difficult market conditions.

Consider reducing overheads, such as moving to a smaller office space, and look to outsource non-core functions, such as human resources management, accounting, and payroll.

Read our guide on how to reduce costs and increase profits.

9. Assess your business’s risk tolerance

It’s a good idea to check on your business’s risk tolerance level.

Consider the level of risk your employees and systems can handle, and create forecasts for different scenarios, such as if sales fall or interest rates increase on business debt.

Understanding your business resilience and the level of risk you are willing to take on can help inform decision-making, such as taking on debt to expand operations.

10. Devise an action plan

It can be a good idea to plan for different scenarios and create action plans accordingly, so you are prepared should a crisis hit.

A well-thought-out plan can help minimise mistakes made under pressure or bad decisions made in the moment.

Involving employees in the planning process will help them to buy into the plan.

Recessions can be challenging for small businesses, but it’s important to remember that they can also present opportunities.

Safeguarding your business and keeping a positive attitude can help build resilience and prepare the ground for taking advantage of new, emerging opportunities.

Find out how to apply for a Start Up Loan to help your business grow.