Recessions and economic slowdowns are unpredictable. They can be caused by natural disasters, pandemics, system breakdowns or just the natural flow of economic cycles. Although there is very little we can do about when a slowdown happens, there are a lot of things we can do when they happen.
For some of us, the recession of 2008 is fresh in our minds. For others, it was a distant memory. And still, for new entrepreneurs, 2020 will be the first test of their business’s ability to be resilient during a tough economic climate. The COVID-19 pandemic has created a sense of uncertainty for the future for many small and large businesses as well as their employees.
The good news is that we can learn from the past and apply some principles used during the 2008 crisis. Even though many small businesses and large companies never recovered from the recession, there were many that not only survived, they were in a position to take advantage of the recovery.
In this article, we will be discussing some strategies that strong companies implement and habits they practice that prepare them to survive and even thrive during a recession and economic slowdown. Some of these strategies are better when implemented before a slowdown happens. However, most of them can be implemented right away. Don’t forget to subscribe to this site and follow us on social media to get more useful information.
How Strong Companies Survive Recession: 7 Practices to Apply to Your Business
1. Have Cash On Hand
82% of businesses fail because of cash flow issues, according to a study by U.S. Bank. Having cash on hand is a must if you want your business to survive during a recession. You will need to save with the usual costs of your business for you to have more cash on hand. It will mean that you have to lower down your business expenses so that you can have your business surviving at the end of a recession.
It is not a coincidence that some of the companies that are least affected by the economic downturn are those with the most cash on hand. As of this article, Microsoft, Berkshire Hathaway, Alphabet, and Apple are all sitting on $100 billion or more in cash. Some of the most cash-heavy companies around the time of The Great Recession had between $5 billion to $20 billion in reserves. These funds can not only sustain the business, but they can also be allocated to bonus employees or, even, acquire other businesses.
The 2008 financial crisis caused the casualties of many banks. Large and small banks that were in trouble were acquired by much healthier banks. JP Morgan Chase was able to purchase Washington Mutual and Bear Sterns for pennies on the dollar.
During the 2020 pandemic, Apple went on a buying spree. In a matter of weeks, the company closed on 3 acquisitions including the purchase of DarkSky, a popular weather app that has been widely viewed as the best weather app in the industry. Whether you want to expand your company or just keep it in business, having cash on hand is crucial.
Here’s how to do it:
Reduce your commercial space rent
You can ask your landlord if you can get a lower rent but with a longer lease term. The landlord will most likely agree to it instead of just ending up having a vacant space. Since it’s the recession and he’s also running a business.
Find where to get some discount on utilities
Utilities like electricity, water, phones, or the internet can hurt your business surviving the recession. Normally, you can get a bundled service with your phone and internet bill.
Cut unnecessary spending
Having a magazine or newspaper subscriptions can cost a lot especially during the recession. Cable TV can also add up. Just retain the things that you and your employees can’t live without.
Start leasing instead of buying
Leasing can be less expensive than buying a piece of equipment. Just lease whatever you can for the meantime.
Postpone your payables
If you have some payables every 30 days, ask for an extension. You may need that amount to keep your business surviving and a couple of days can be crucial.
Collect your receivables
When it comes to your receivables, better get them now instead of later. You can give discounts so that you can collect in advance rather than wait for another 30 days.
2. Have Strong Line of Credit
When President Donald Trump signed the massive $2-trillion coronavirus relief package of 2020, some industries hit hardest by the outbreak were not included among those that would receive bailout funds. The leaders of the cruise lines did not complain about not getting help from the package. In fact, they expected to be left out.
“We did not ask nor expect a cash bailout from the U.S. government,” said Roger Frizzell, a spokesman for Carnival. “We recently secured $3 billion from our revolver [credit line] and we have significant assets around the world,” Frizell told the LA Times.
Asked about the U.S. funding bill, Royal Caribbean directed reporters to a March 23 news release that said the company had “entered into a $2.2 billion, 364-day secured term loan facility, further enhancing the company’s liquidity position.”
Also, Royal Caribbean said it has “over $3.6 billion of liquidity consisting of cash deposits and its existing undrawn revolving credit facilities” and had already committed financing for all of its new ships on order.
During tough economic climates, obtaining credit lines can sometimes be difficult. Even though central banks like the Federal Reserve try to implement monetary policies to make money easier to obtain, retail banks and lenders don’t like taking on extra risks during recessions or economic slowdowns.
This doesn’t mean that you will not be able to obtain credit lines, however. It just means that you may have to do some extra leg work to land a credit line. To have confidence and the ability to execute your strategies, it is a good idea to have a credit line you can access. However, keep in mind, cash is still king and you should never take on too much credit.
Here’s how to do it:
Secure a new line of credit before credit gets tight
Even before you lose your business operations money, try to take out a business line. That way, you can tap into when the time goes rough. Banks will make it much more difficult to take out loans and lines once the recession begins to see its darkest days.
Reach out to your suppliers
You need to negotiate with your supplier for the longer term and even an additional line of credit. Do this while the economy is good. In case the recession happens again, you have already agreed with them.
Manage your debts
While your business is doing great, make sure to pay out business debts as soon as possible. That way, when a recession strikes you will not have any problems having to keep up with your payment.
3. Retain Good Talent but Be Prepared to Lose Some Staff
Many CEO’s of multinational corporations have chosen to lower or cut their entire base salary in order to help their company and its employees. Most of the CEOs that have taken this step are leaders in the hardest-hit industries such as hospitality, air travel, and other areas of transportation. One of the major reasons why these leaders have made this move is to help reduce the number of jobs that are lost.
It would be great if we could keep everyone on our team. However, due to the recession, you have to lose some people if you want your business to survive. It’s not easy but you need to prepare yourself and assess which one to keep and who needs to be let go.
Here’s how to do it:
Be open to your team
During tough times are the best time that you have to be more open to your employees. Update them what’s happening and what’s possible that might happen.
Reduce working hours before the salary
Do not reduce the salary right away but rather cut off the working hours. It may not be a good idea to cut from the rate. Productivity can be affected if you do it that way.
Let go once
If you think that you have to let go of some people because you can no longer afford it, do it once. But do it as soon as you foresee a recession is coming up. That way, the best people will not be scared that they might lose their jobs after a few months and think about finding another job.
Reduce your salary
You can even just eliminate your salary in the meantime. It’s better to do that than reducing your employee’s salary. You need them if you want to have your business surviving the recession.
4. Lower Operating Cost
You will have to adjust your business for the recession. It means that you don’t have to operate the same way as your booming time. This time, you will need to lower all your expenses and even cutting back from your operating costs. You don’t have to go to extremes. Just make sure that you will save some money that you can save up to have more cash fluid that you can keep your business surviving from a recession.
Here’s how to do it:
Check your inventory
You may need to check your inventory again so that you will know what’s the bestselling and the items that are just gathering dust. You can even just cut down the number of units that you have to get from your supplier. Instead of ordering 100 pieces of each, why not cut it in half so that you can have extra money for your business.
Change your business strategy
During the recession, there are other products that your customers may need the most. If you don’t usually sell them, add them to your inventory now so that you can make more income out of that. During the recession, the consumers will only stick to the necessities. So if you are selling specialty products, you can add more generic items so that your existing customers can get them from you instead of going to another shop.
If you have a team, you may want to redirect their jobs to tasks that cannot be replaced by technology. Then, for the time being, utilize technology for other marketing, customer relationship management, and social media management.
5. Monitor Inventory Closely
This is an important part of cutting from your business costs during the recession. Monitoring your inventory can help you see where you can make the most of your cash flow. If you have a few hundreds of items sitting in your storage room, you may need to just put them on sale. That way, you can have your capital back and have more for the bestselling items.
Here’s how to do it:
Make a list of your products
You need to make a list of your items if you haven’t done that from the past. Rank them based on the salability.
Have a sale
The slow-moving products should just be on sale. That way, your customers will be enticed to get them since it’s on sale anyway. Then you will get your money and some income out of it.
Change your inventory
Once you have sold those slow-moving products, don’t restock. Find a better product replacement that the consumers are likely to buy even if it’s during a recession.
6. Hope for the best, plan for the worst
David Cote is the ex-CEO of Honeywell whose reputation was solidified by successfully leading the company through The Great Recession. Cote set Honeywell on a trajectory for unexpected growth by skillfully navigating the Great Recession that struck in 2008.
In an interview with Fortune, Cote spoke on some of the things that helped him succeed where many CEOs failed. “My credo is to hope for the best but plan for the worst. Pick a plan and start executing it as if you expect the worst to happen. If you rely on the Hopecast, and six months from now, the worst happens, you’ll tell yourself, “I wish I’d picked a worst-case strategy back then.”
Hoping for the best and planning for the worst can prepare you for the upside of economic recovery while protecting you from possible disaster.
Here’s how to do it:
Pick one main strategy
During a recession, you do not want to take unnecessary risks. Trying several different strategies may cost you valuable time and money. David Cote recommends picking one strategy and seeing it through.
Keep investing in the future
Even though you are trying to get out of the slow economy, you also want to think about the recovery. Continue to do the things that will grow your business and put you in a position to capture an opportunity.
7. Take good care your best customers
The current expectation of many larger companies is that they consider their customers during the COVID-19 pandemic and recovery. Many larger companies have waived fees, lowered the cost of products and delayed payment due dates as a measure to alleviate the financial stress many are facing.
Small businesses may not have the luxury of waiving fees and delaying accounts payable. Many entrepreneurs cannot afford even a small drop in cashflow. Doing so may mean closing their doors forever. However, just because you cannot afford to offer your product or service for free for a period of time, doesn’t mean you cannot show your customers you want to take care of them.
Here’s how to do it:
Run Your Best Sales
Most small businesses run their biggest and best sales during the Summer and Holiday seasons. Now is not the time to wait until then to give the public a great deal. Although many have been affected and have lost jobs due to the pandemic, there are still millions of people whose incomes are intact. Capitalize by offering those people with a deal they cannot refuse.
Offer discounts for early payments and purchasing in bulk
Some people are preparing for the worst-case scenario by prepaying bills, lowering debt, and buying in bulk. Small businesses can attract new customers and keep their current customers by offering discounts for early payments and placing bulk orders.
Offer some add-ons and extras for free
Most likely your business follows the 80/20 rule when it comes to sales. This means that 80% of your revenue comes from only 20% of your products and services. During a tough economy, you may be able to offer the lowest-earning 20% as a free add-on. The product or service that you offer that drives your business should be preserved but adding on extras may help increase revenue on those products without damaging your bottom line.
When it comes to surviving a recession we are all in this together. Whether you are a leader of a small business or a major corporation, the actions you choose to take will affect your company and everyone who relies on it. Learn to practice good habits and implement time tested strategies and you will be able to weather the storm no matter how strong.