Businesses’ “recession-proof” are typically resistant to the negative effects of an economic downturn. Recessions frequently occur after the economy peaks and then contracts, resulting in two consecutive quarters of negative GDP growth.
Some businesses and industries thrive during a recession for a variety of reasons. One method for identifying recession-proof businesses is to look for those with negative beta values. This means that the price of their asset moves in the opposite direction of the market.
The healthcare sector, for example, has higher negative beta values because, regardless of the economy, consumers will always require medical care — even more so during a crisis.
Another notable example is Amazon’s performance during the COVID-19 pandemic. During the crisis, Amazon struggled to meet the increased demand, but it quickly began to listen to its customers and scaled up its warehouse and delivery staff. As a result, they were among the biggest winners during the pandemic and subsequent economic downturn.
Although these and many more sectors and businesses have been labeled recession-proof, you can only partially predict the nature and course of a recession. What’s important to know is that there are ways to protect your business if the economy tanks. Here are five steps you can take right now to get your company on the right track.
How to make business recession-proof?
1. Expand Your Company’s Portfolio
Increasing the cash in your company’s portfolio is a good way to protect against a recession. Asset diversification, a long investment timeline, and rebalancing the business’s investments can also help to protect your business from a recession. They enable investors to gain access to liquidity quickly in case of a stock market crash.
2. Pay as You Go
Even with increased cash reserves, to recession-proof your business, you must also be able to tie all business expenses to matching sales. For example, if your company requires office supplies, you should cover those costs with sales generated during the same time period.
3. Investing in Marketing
It may not be the first thing that comes to mind when saving money, but marketing your business is critical to surviving a recession. Investing in strategic promotions allows you to acquire new customers and offset lost business.
Examine your current marketing strategy and reevaluate your marketing process in the current environment. Reexamine your company’s website and monitor analytics to ensure it is still generating revenue for your company. Even minor website and social media strategy changes can yield significant results.
After you’ve decided where to spend your marketing dollars, it’s time to refine your company’s voice and create a better value proposition for your customers. This will aid in the development of new relationships and the strengthening of existing ones.
4. Make customer service a top priority
Among all business recession strategies, prioritizing customer service is the most effective way to ensure a company’s long-term stability. Customer service is necessary for repeat sales, which are necessary for a business to survive during a recession.
Although it varies by industry, attracting new customers is frequently more expensive than keeping existing customers. Recognizing this will help your company become recession-proof by focusing on the wants and needs of your current customers. Pay attention to their concerns and make it a priority to address them.
Ensure that your employees are fully trained on the products or services you are offering and on customer service.
5. Set a good example
A great leader’s responsibility is to inspire employees to work hard and do their best for the company or organization. Great leadership begins with setting a good example. It allows employees to see what the future holds.
Do you need to increase your working hours and reduce your pay? Begin with yourself. Work more hours and accept a pay cut. Demonstrate to your team that you’re all in this together. To accomplish this, the leader must become involved in the process and show employees how to exit.
Why Should You Recession-Proof Your Business?
A recession can have one or more consequences for your company.
Revenue has been reduced.
Customers have less money to spend during a recession, so they are more selective about what they buy. If your company’s offerings aren’t critical, your customers may stop buying from you, at least temporarily.
Credit is difficult to obtain.
Lenders frequently tighten lending guidelines and increase interest rates during a recession.
Product quality deteriorates.
Companies looking for ways to cut costs due to declining revenue may also end up cutting quality. Unfortunately, this measure has the potential to create a vicious circle. Customers may take their business elsewhere if you reduce quality, forcing you to cut costs.
There is a cash flow problem.
During a recession, several factors may contribute to cash flow problems. If your customers fail to pay you, you may need to postpone payments to some of your vendors and suppliers. If a company that is your customer goes out of business, leaving their bills unpaid, the situation can become even more complicated.
Surviving in a Recession
What goes up must come down, and the economy is no exception. The fact that there have only been a few significant recessions in the past century must be kept in mind, though.
They occurred in 1973-1975 (oil shock recession), 1980-1982 (stagflationary recession), 1990-1991 (Gulf War recession), 2001 (dot-com recession), 2007-2009 (Great Recession), and 2020 (the COVID pandemic recession).
Even the prospect of a recession can be terrifying. Rather than allowing fear to overcome you, take the time to prepare for it and make the most of it the next time it occurs.
There are several approaches to take when it comes to business recession strategies. Depending on your particular business, some will work better than others, but the key is to have current economic information and analysis at your fingertips.