The global economy is cyclical, and downturns are inevitable. With everyone facing the prospect of economic uncertainty, we all need to prepare for a recession. In this blog, we delve into the strategies your business can implement to weather the storm of an unpredictable business climate.
What is a Recession?
Before we jump into the problems businesses are riddled with during a recession, it is important to define the phenomenon. According to the National Bureau of Economic Research (NBER), the authority on US recession dates, a recession is marked by a massive decline in economic activity consistently apparent throughout the country’s economy. The NBER states that the United States has gone through 13 recessions
since 1945.
An economic dip was also largely felt during the COVID-19 pandemic despite the downturn mostly showing for the first 2 months. However, these trends might resurface again as economics experts predict a 59% chance of a recession by the second half of 2024.
How Your Business Could Be Affected By a Recession
During economic booms, businesses often experience growth, but this may not necessarily safeguard them during a recession. Despite the rise of the digital age, Zapier reports that more than 50% of tech companies don’t think they can survive a 2-year recession.
To avoid becoming part of that statistic, you need to find out how you can stay competitive or you could be another casualty to the potential effects of a recession:
Reduced Cash-flow
Cash-flow reductions are another common consequence of a recession. Customers take longer to pay, and accounts receivable may become uncollectible, impacting a company’s ability to pay employees and suppliers on time. Businesses may be forced to dip into their cash reserves, leading to delayed debt payments and further cash flow issues.
Lower Profits
Declining profits can be a big hit on companies that are just getting by. To cope with reduced profitability, some businesses may cut corners on raw materials, overhead costs, or employee salaries. This can sometimes lead to a decline in product quality or service. Consequently, consumers can be turned off by the lack of quality and consistency.
A recession can also cause price wars that can devalue your products or services— decreasing your prices, revenue, and demand all in one go.
Reduced Workforce
To manage costs, businesses may resort to employee layoffs, reduced benefits, or frozen hiring. Decreased demand is a top reason why companies struggle during a recession, and it is often uncontrollable, but businesses can take proactive steps to nurture customer loyalty and gain market share.
Operational changes become necessary to increase efficiency, reduce costs, and boost profits during a recession. Businesses may also impose spending restrictions on marketing efforts, leading to a shift towards cost-effective strategies like guerilla marketing.
How Your Business Can Save on Costs Now
Don’t wait for a rainy day to learn your lesson. Surviving a recession takes proactive decisions before one occurs. A critical aspect of surviving a recession is maintaining sufficient cash reserves. The previous global financial crisis highlighted the importance of liquidity, and businesses with strong cash positions were better equipped to handle the downturn. Here are some tips to survive the next recession as gathered from reputable sources such as Deloitte, Bain & Company, and McKinsey & Company.
Stable and Goal-oriented Management
According to a McKinsey & Company analysis of the cumulative TRS performance of several companies, resilient companies performed better during the start of a downturn and in its aftermath. The key here is to cultivate such a resilient culture in your business to start with your management.
In a crisis, employees often look to their leaders to determine how to act. It is important to stay calm while still informing your team about the reality of the recession.
Leverage Outsourcing to Stay Agile
Do away with employee layoffs and salary cuts. Start smart and outsource your work to offshore virtual employees. By collaborating with a reliable outsourcing partner like MOVE, companies can access skilled virtual employees without the expenses associated with hiring full-time staff.
Outsourcing enables businesses to scale their operations up or down as needed, thus offering an ideal solution for navigating the uncertainties of a recession.
Focus on Innovation and Customer Value
Investing in innovation and improving customer value propositions can set a business apart during a recession. During a time when cash comes by even for your consumers, you can stand out by innovating to produce quality service at half the price. At MOVE, we amplify our efficiency and productivity with the use of artificial intelligence (AI) to deliver quality services to our clientele. This has helped one company skyrocket sales by 50%.
How Businesses Can Survive a Recession: The Bottom Line
As businesses brace for the possibility of economic downturns, the lessons learned from past recessions and the strategies employed by successful companies during tough times become invaluable. In the upcoming MOVE webinar “Recessionary Woes: What We Learned from the Last One, and What We’re Doing Now” on August 22, 2023 at 11 A.M. Pacific Time.
Join industry experts Anthony Geraci & Scott Empringham as they delve into these key takeaways so you can navigate a recession successfully:
- What Got You Here Won’t Save You There
- During bad times, cash is royalty – make sure you have it.
- Now is the time to optimize your company and get as lean as you can.
What are you waiting for? Get in-depth insights by registering via this link.
By embracing change, prioritizing cash flow, optimizing operations, leveraging outsourcing, and focusing on innovation, businesses can strengthen their resilience and increase their chances of surviving and thriving during economic downturns. Remember, preparation is the key to not just surviving but emerging stronger on the other side. For more insights on how virtual employees can work for you and your business, follow us on Facebook and LinkedIn.