Survival of the Fittest: Here's How to Avoid Going Bust During a Recession

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Thursday, February 18, 2021

Survival during difficult times will be the main focus for many businesses at the moment, so how can you maximize your protection against going bust during a recession?

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Survival of the Fittest: Here's How to Avoid Going Bust During a Recession
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COVID-19 has created countless challenges for businesses, arguably the biggest of which is simply surviving amid a global recession.

According to the World Bank, the pandemic will trigger the worst recession since World War II, with the worldwide economy expected to shrink by 5.2% in 2020. Economic activity in advanced nations could contract by 7% as a result of huge disruption to demand, supply, trade and finance.

In extraordinarily difficult circumstances such as these, businesses that have taken a proactive, pragmatic approach will be the best-placed to succeed.

So what measures can you put in place to shield your business from the worst of the recession?

Understand your unique position

There will be plenty of information in the news about macroeconomic trends like GDP falling and interest rates being slashed, but managers should be more interested in analyzing the current position of their business on a granular level.

You need a detailed picture of where you currently stand, so you can understand your exposure to adversity and come up with a survival plan.

"When a company's sales drop, it's time for management to understand its particular situation: How badly does the business's particular sector of the economy typically decline in a recession? That's important to know because the media will be abuzz with doom and gloom." - Economist and consultant Bill Conerly
 

Conerly pointed out that, while no industry is recession-proof, some are more insulated from economic headwinds than others. This has been particularly evident during the COVID pandemic. Hospitality providers and restaurant chains have suffered greatly in 2020, for example, while businesses specializing in online grocery shopping have thrived.

Get a grip on your cash flow

When basic survival is your top priority, the amount of cash available to the business becomes hugely important. You can increase your chances of making it through a recession by acting early to protect your cash flow and maximize your liquidity.

This could involve making some difficult decisions about where you need to cut back on your outgoings. Start by looking for unnecessary expenditure that can be reduced or eliminated entirely. Look into whether you could save money by:

  • Reviewing your insurance arrangements to see if you could get a cheaper deal from another provider
  • Encouraging energy-efficient workplace practices to lower your bills
  • Downsizing to smaller premises if your existing space isn't being used

As well as looking at your expenses, it's important to ensure you're maximizing the cash flowing into the company. This might involve chasing unpaid invoices, which you should do as quickly as possible if you're concerned about debtors going out of business.

Go into emergency mode

While it's important not to panic about the challenges the business is facing, it can prove useful to adopt an emergency mindset when you're attempting to survive a recession.

This might involve placing a strict focus on your core business and ensuring that every member of staff recognizes the part they have to play in keeping the company afloat. Even if you've made it through the earliest stages of a recession relatively unscathed, the wisest approach could be to hope for the best and prepare for the worst.

Prioritize your incoming cash to cover fundamentals such as paying for the resources - human or otherwise - that are absolutely essential to maintain a basic level of service delivery.

Show flexibility

If you're concerned that your current business model or operating methods won't be sufficient to get you through a recession, think about possible changes that could help you stay afloat during times of adversity.

The COVID crisis has provided a powerful illustration of how being flexible can save businesses from financial disaster. Economic shutdowns and restrictions on people gathering indoors have cut off traditional revenue streams for restaurants and physical stores, but shifting to home delivery could have provided a financial lifeline to keep these companies solvent in 2020.

Look after your customers

Regardless of economic circumstances, your current customer base will always be one of your most valuable assets. Bringing in new business could give you a useful financial boost during difficult times, but this is likely to prove much harder and more expensive than looking after your existing customers, especially during a recession.

Customers who have shown loyalty to your company for a long time will want to know that you appreciate their business and that you're willing to work hard to keep them on board. This is likely to prove particularly important at times when everyone - consumers and companies alike - are facing financial challenges.

You can show your regular buyers how much you value their loyalty by stepping up basic customer service activities, such as following up on sales to ask if they're happy or if they need any further support.

Small actions like this can go a long way to protecting your income, which is vital if you want to survive a recession.

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