Recession-proof businesses are important for a lot of stakeholders. It helps ensure businesses’ longevity and survival, regardless of whether these are small businesses or large corporations. In a bigger picture, this can help Australia’s economy weather the drawdowns.
In this article, we are sharing a few tips for surviving a recession as a small business in 2023 and even possibly achieving sustainable growth beyond it.
How will we know when a recession has begun in Australia?
There is no clear-cut definition of the term recession. However, it does mean there is a prolonged widespread slowdown in economic activity. The key factors that indicate this are a decline in consumer demand and spending, businesses downsizing and cutting costs, and exorbitant prices due to the inflation rate.
While it has not been confirmed if Australia is in a recession, certain economic factors allude to the possibility that the country is flirting with this potential risk.
Specifically, the National Australia Bank (NAB) forecasts that the country’s economic growth will slow down from 0.7% in 2023 to 0.9% in 2024. While it might not seem substantial, this will potentially lead to a decrease in consumer spending due to higher rates and inflation.
Moreover, according to NAB, it is up to the Reserve Bank to ease monetary policy or cut interest rates early next year to help alleviate the slowdown. Even so, Australian households will still absorb high inflation and rising interest rates.
On the bright side, NAB also forecasts after muddling through 2023 and 2024, the country will see an economic pickup with a growth trend of 2.2% by 2025.
How does the recession affect small businesses?
How will the impending recession affect your business? Right off the bat, profit is the first thing that comes to mind. However, it goes beyond that. We listed below the negative side-effects of a recession you need to watch out for.
Loss of Demand
This is especially felt by companies that are inventory-intensive, usually a business-to-customer (B2C) or a business-to-business (B2B) enterprise supplying goods to B2C companies.
Essentially, a business has an extensive stock of products in inventory. However, it is difficult to sell the goods due to decreasing demand and customer spending. This results in potential losses since these remain stagnant.
Reduced Profits
Due to a decline in demand and customer spending, small businesses usually witness a reduction in profits, especially those selling mid-tier and luxury goods. As a result, business owners adjust by cutting costs, such as reducing overheads, laying off employees, and postponing investments.
Credit Crunch
Aside from business owners cutting costs, financial institutions are also becoming more cautious. As a result, they tighten their belts and have stricter lending requirements. This makes it harder for small business owners to access credit and secure a business loan.
Reduced Cash Flow
A decrease in demand and reduced profits naturally reduce a business’s cash flow. This can make it difficult for business owners to make timely payments and even spend more time following up on invoices.
Moreover, limited cash flow means limited resources. This can disrupt a small business’s entire business cycle and make it more difficult to operate during a recession.
Decline in Product Quality
The product quality is also affected by the recession. Business owners are looking for ways to reduce costs and improve their profits. This can translate to switching certain aspects of the product for more affordable alternatives or a decrease in the service provided.
Marketing Constraints
Marketing is usually one of the first aspects that most small businesses would cut their budget and spending. For some that already have an established customer base, advertising efforts would seem wasteful.
However, this has a detrimental effect in the long run, especially after the recession and customer spending picks up again. One, marketing can help encourage existing customers to make repeat purchases. Two, it can continuously attract new customers. Three, it can minimise or offset customer attrition.
Staffing Reductions
Small businesses also reduce their staff to cut costs. While this can momentarily alleviate the pressure caused by limited monetary resources, this can have an adverse effect as the recession goes on. The remaining staff will feel overworked and demoralised. This can impact their productivity, increase employee dissatisfaction, and increase employee turnover.
How To Make Your Business Recession-Proof
On the bright side, there are a couple of ways to recession-proof businesses. We listed 7 steps to recession-proof your business that you can apply even before the recession hits.
Secure Cash Flow & Be Smart With Debt
The first thing you should do is to know how to recession-proof your finances. Having cash reserves and other funding sources is crucial since you always have something to fall back on.
There are a couple of ways to do this:
- Be prompt when sending out invoices and reviewing receivables. This ensures you avoid any late payments and minimise overdue clients.
- Know the number and take control of your cash flow. It makes it easier to create a profit plan and identify the points in your business that you can push or pull back during the recession and any economic situation.
- Raise capital with bank credit or other lending options. Having capital during uncertain times like a recession is a smart move.
- Be smart with debt and maintain healthy credit. It is good that you can get more backing or monetary support when you really need it.
- Diversify your funding sources by building multiple revenue streams. This ensures your business remains flexible and can withstand economic downturns.
Talk To Partners And Suppliers
There is a lot of uncertainty during a recession.
But, one thing you can be sure of is that you can maintain a strong relationship and proactively communicate with your partners and suppliers. Be transparent with your partners and stakeholders about your game plan and the state of your business. This gives you a better pulse of your business’s situation and creates a clearer picture of how to move forward.
Aside from that, you should so consider the following things:
- Looking for alternative partners
- Review the inventory management process
- Leverage track technology and Point of Sale (POS) systems
Improve Core Competencies
It is a good idea to diversify your small business since you have more to offer your current and potential customers. However, it may not be a good idea when facing economic headwinds.
Instead, you should focus on improving core competencies as a good business strategy during a recession. This minimises risk and damage to your company and provides you with a couple of benefits in the long run:
- Competitive advantage from the unique strengths and capabilities that comes with further developing your core competencies.
- Increase efficiency and effectiveness since you have refined and optimised your business.
- Mitigate risks associated with new ventures and new untested aspects of the business.
- Increase business resilience since your business can quickly adapt and remain agile based on your core competencies.
- Grow the business and achieve long-term sustainability after the recession period.
Capitalise On Loyal Customers & Grow Customer Base
Another way to recession-proof your business is to capitalise on your existing customers and grow your customer base.
To do the former, consider remarketing. It is an economical marketing method since your existing customer is already familiar with your brand, products, and services. Your existing customer base can boost your sales since they are more receptive to upselling and cross-selling.
You can also express your appreciation for their loyalty by providing an exclusive experience, product, or service. This VIP treatment can solidify loyalty and relationship with your customer. This can be used also to improve the perception of your brand to potential customers and increase the conversion rate.
Build An Agile Workforce
Layoffs are common during a recession and these can cause widespread damage to your small business. These can affect employee productivity and satisfaction, business operation, company culture, and your brand’s reputation.
Most recession-proof businesses remedy this by building an agile workforce. They can easily pivot, adapt, and promptly react to changing times. A way to do this is by cross-training your existing staff in different areas of the business.
Aside from that, there is also the option of flexible work. You can augment your workforce with freelancers or teams from outsourcing agencies. Most are seasoned professionals that can fulfil the necessary roles in your company with minimal supervision at more affordable rates compared to hiring new in-house staff.
Do Not Stop Marketing
Continued marketing efforts are one of the recession-proof strategies that are crucial for your small business’s survival during the recession period. There are a lot of reasons why it is strongly encouraged:
- Maintain brand visibility. This allows you to stand out and remain at the top of people’s minds until they are ready to make a purchase.
- Build brand awareness. It reinforces the fact that your brand is reliable and trustworthy. In addition, people are more likely to choose and make a purchase with a brand they are familiar with.
- Gain market share. During the recession period, most businesses cut their marketing budget and efforts. With less competition, this allows you to capture a larger chunk of your niche market.
- Maintain customer relationships. Customer loyalty and retention are crucial during a recession. Actively engaging with customers by providing updates, offering promotions, or providing valuable content, can strengthen your relationship and foster loyalty.
- Adapt to changing consumer behaviours. A recession, or any economic situation, can change consumers’ spending behaviour and preferences. Actively marketing can help you maintain a pulse on this and adapt accordingly.
While you do not need to beef up your marketing budget, you can start by reassessing your marketing strategies. From there, focus your resources on more cost-effective strategies that can yield more results.
Keep Personal Credit & Investments In Good Shape
Even if you are doing everything right, maintaining your personal credit in good shape is another essential recession-proof strategy. When the need arises, it makes it easier for you to secure a loan to keep your business running.
Aside from your credit, you should also take care of your investments, especially if it means protecting your company’s interests and weathering economic headwinds. A way to do this is by delaying large purchases and making do with what is currently available.
Of course, if you are considering making a big purchase or investment for your business, you need to ask yourself the following questions:
- Do you really need it?
- Is it the right time?
- How will my business benefit from this?
- What other ways I can maximise this for my company’s benefit?
- Can I should the cost?
- Do I need to get a loan for this?
- How long will I need to settle the debt if I take out a loan for it?
Seize Every Opportunity To Recession-Proof Your Small Business in 2023
Recession-proof, meaning no matter how bad the economy gets your small business will weather through it, involves a lot of strategies. Just like the ones we listed above.
However, if you boil it all down, recession-proofing can be divided into two ways. One, preparing beforehand, so you have something to fall back on when things get tough. Two, seize opportunities presented by the recession—or, any challenges that come your way.
While it requires future-proof planning, disciple, and foresight, it yields plenty of long-term benefits when you recession-proof your company.
Save your small business during a recession by joining our corporate accelerator program!