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Proven strategies to recession-proof your business in 2023

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A recession is a significant decline in economic activity that lasts for an extended period. One of the most notable recessions in recent history was the Great Recession of 2008-2009. This recession was triggered by a collapse in the housing market, which caused widespread losses in the financial sector and a sharp decrease in consumer spending.

Over a decade later, the pandemic had a significant impact on the global economy, with many businesses struggling to survive. The economic recession caused by the pandemic highlighted the importance of having a recession-proof business.

With another recession looming, what steps can a business take to survive an economic downturn?

What is a recession?

An economic recession is a period of significant decline in economic activity, typically characterized by a drop in gross domestic product (GDP), income, employment, and trade.

Two consecutive quarters of declining GDP growth is often considered a recession. But economists use multiple determining factors.

The National Bureau of Economic Research (NBER), a private nonprofit research organization, defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

NBER, which the White House describes as the “official recession scorekeeper,” said there’s no fixed rule or threshold in its process for determining dates of economic peaks and troughs.

A recession can be short lived — a few weeks — but can also stretch across several years. The pandemic recession has been described as deep but short, although some would argue that it never ended.

Now, as inflation continues and markets fluctuate, many economists are worried about the potential for the economy to slide into another recession.

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What is a recession-proof business?

When the economy takes a hit, some businesses crumble, while others seem to thrive. The businesses that thrive during these tough times are called “recession-proof businesses.”

During a recession, consumer spending tends to decrease, which can have a negative impact on businesses that rely heavily on consumer spending. Recession-proof businesses are essential because they can survive and even grow during economic downturns. They have characteristics that make them successful during tough times, such as being able to pivot quickly and adapt to changing circumstances.

One of the characteristics that make a business recession-proof is its ability to provide essential goods or services. For example, healthcare providers offer necessary medical care, while discount retailers provide affordable products that people need. Businesses that offer non-essential goods or services may struggle during a recession because consumers are more likely to cut back on discretionary spending.

Another characteristic of a resilient business is their ability to adapt to changing economic conditions. This can include modifying their products or services to meet the changing needs of consumers, finding ways to cut costs without sacrificing quality, and investing in innovative technology to improve efficiency.

By being proactive and flexible, they’re able to weather economic downturns without experiencing significant declines in revenue or profits.

Additionally, recession-proof businesses often have strong relationships with their customers. By understanding the needs and preferences of their customers, these businesses are better equipped to make changes that will keep them competitive during a recession. For example, a food and beverage business might offer new, lower-priced menu items during a recession to appeal to budget-conscious customers.

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Examples of recession-proof businesses

Recession-proof businesses are those that are less affected by economic downturns and can continue to thrive even during periods of recession. These businesses provide goods or services that people need regardless of the economic situation, or they may offer products or services that become even more essential during difficult times.

  • Healthcare: Medical care is always essential, regardless of economic conditions, and people are likely to continue to seek medical attention during a recession.
  • Education: Education is another necessity that is unlikely to be affected by economic conditions, as people will continue to invest in their future and that of their children.
  • Essential retail: Stores that sell goods that people need, such as groceries and household items, are generally recession-proof.
  • Utilities: Providers of essential services such as electricity, water, and gas are usually unaffected by economic downturns.
  • Repair services: Businesses that offer repair services for appliances, electronics, and vehicles are also likely to be recession-proof, as people tend to repair rather than replace items during tough times.
  • Debt collection: Debt collection companies tend to do well during recessions, as more people struggle to pay their bills.
  • Funeral services: While not a pleasant thought, funeral services are always in demand, regardless of the economic situation.
  • Discount retailers: Stores that offer discounted products or operate on a low-cost model may see increased demand during a recession, as people look to save money.

It’s important to note that even recession-proof businesses can face challenges during economic downturns, but they’re generally better positioned to weather the storm than other types of businesses.

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29 recession-proofing strategies for your business in 2023

As a business owner or manager, it’s easy to become overwhelmed and let the basics of good business hygiene fall by the wayside. However, during times of economic downturn, these core practices can be crucial for the success of your business. That’s why it’s important to prioritize advanced planning, cultivating long-term business strategies, and investing in growth, even during a recessionary business environment.

To protect your business, consider implementing one or more of the following strategies outlined below, which are divided into four categories: good hygiene, preplanning, cultivation, and investing.

Good hygiene: Get your house in order

By focusing on practices such as creating a cash flow plan, assessing workforce needs, operating within a budget, building up employee skills, tracking marketing KPIs, beating the competition, and being patient, you can better prepare your business for the challenges of a recession. Here are some good hygiene tips for recession-proofing your business:

1. Create a cash flow plan: A cash flow plan is essential in understanding your business’s finances. It helps you to analyze your expenses and revenues to ensure that you can keep the business running even during a recession.

2. Assess workforce needs: A downturn may mean reduced demand for your products or services, and you may need to reduce your workforce to cut costs. Assess your workforce needs in advance to ensure that you have the right people in the right positions.

3. Operate within a budget: A budget is a financial plan that helps you allocate your resources to achieve your business goals. During a recession, it’s critical to operate within a budget to minimize expenses and avoid unnecessary costs.

4. Build up employee skills: Employees are an asset to your business. It’s essential to train and upskill your employees to ensure that they can adapt to new business models during an economic downturn.

5. Track marketing KPIs: Key performance indicators (KPIs) are metrics that measure the success of your marketing efforts. During a recession, it’s essential to track your marketing KPIs to ensure that your marketing efforts are effective and targeted towards the right audience.

6. Beat the competition: During a recession, competition gets more fierce as businesses struggle to survive. You need to stand out from the competition by offering unique products or services, exceptional customer service, or affordable pricing.

7. Be patient: Recession-proofing your business takes time, effort, and patience. Be prepared to make changes gradually and keep an eye on your financials to ensure that your business is moving in the right direction.

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Pre-planning survival strategies

This is a vital aspect of recession-proofing your business. It involves anticipating possible challenges and risks, and developing strategies to address them before they become significant issues. Here are some preplanning strategies that businesses can implement to increase their chances of surviving during an economic downturn:

8. Know your liquidity options: In case of financial difficulties, businesses should have a range of options for raising capital. Investigate potential sources of capital, including revolving loans, private equity, and government resources such as loans backed by the Small Business Administration.

9. Establish flexible client agreements: One way to build customer loyalty is by offering negotiated flexibility, such as customized offerings in exchange for faster payment terms. Being flexible can create goodwill and repeat customers.

10. Create a business emergency fund: It’s wise to establish an emergency cash fund that can cover up to six months of essential costs, including payroll, inventory, and utilities. Aggressively collecting receivables can help get you started.

11. Assess your organization’s risk tolerance: Do an honest assessment of your leaders, staff, and systems to determine how much risk your organization can handle. Consider how much additional risk your business is willing to take on and create a range of tolerance, along with metrics for measuring it.

12. Pay down debt: Coming into a recession as debt-free as possible positions a company to have the highest amount of capital available to draw on in the future, should they need it.

13. Find ways to cut back: Cutting back operating expenses can be a challenging task, but it’s helpful to start with the biggest costs and see if there are small tweaks that can result in big expense reductions. For example, consider the use of technology to automate tasks that were once done manually. Also, consider using more contractors in place of full-time employees to adjust to changes in demand.

14. Develop a proactive plan before business declines: Crafting well-thought-out action plans can minimize errors that may arise from stress or hasty decision-making. Seeking input from employees can also increase their ownership in the plan, in the event that it needs to be implemented.

15. Reduce overhead: Overhead costs are expenses that remain constant regardless of revenue, so they become particularly problematic in a recession. Identify ways to reduce overhead in advance, which may help your business regardless of macroeconomic conditions.

16. Downsize inventory: During a recession, inventory turnover may be slow, and inventory can become even more costly. Maintaining a balance between converting inventory to cash and retaining the ability to fulfill orders is crucial, even though managers may be inclined to downsize inventory during a recession.

17. Be proactive by securing financing before an emergency occurs: Businesses should secure financing options before an emergency occurs. Some practical steps include appraising assets that could potentially be used as collateral, having discussions with vendors about trade credit options, taking measures to improve your business’ credit rating, and renegotiating extended payment terms on existing loans. By taking these steps in advance, businesses can be better prepared to weather financial challenges.

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Cultivation strategies for protecting your business

This is the process of nurturing and growing your business, even during tough times. Here are some ways you can cultivate a recession-proof business:

18. Create multiple revenue streams: Having more than one source of income can help your business weather a recession. Look for opportunities to tap into new revenue streams using your existing infrastructure. For example, a clothing boutique can consider offering styling services or hosting events like fashion shows. By diversifying revenue streams, businesses can reduce their reliance on any one source of income and increase their chances of surviving economic downturns.

19. Modify offerings: Assess how you can modify your offerings to make them more attractive to customers during a recession. Think about modifying your product, delivery methods or pricing to cater to the way customer needs might change during an economic downturn. As an example, a fitness studio could begin offering virtual classes to appeal to customers who may be hesitant to attend in-person classes. These changes can help businesses meet customers where they are and continue to generate revenue during difficult times.

20. Invest time in building and deepening client relationships: Staying close to your customers is important in all economic climates, but especially during a recession. Understanding their changing needs may put your business in a position to preserve revenue and even penetrate the market more deeply. During the pandemic, Peloton invested in virtual classes and community building to stay connected with its customers and maintain its revenue stream.

21. Strategize as if you plan to sell your business: Setting up your business to survive on its own, similar to the role of parents preparing children for independence, is essential. Setting up processes, delegating authority, and training staff can ensure your business will continue to be successful if the company were sold to an outside entity.

22. Niche-down: Catering to a specific need can help your business become the essential go-to for that niche, making your business more recession-proof. Niching down requires mastering the niche and truly understanding your customers. For instance, a company that produces high-quality valves for use in the oil and gas industry could focus on perfecting their product and building a strong reputation within that industry. By becoming known as the go-to provider of valves for oil and gas, the company can create a loyal customer base and insulate themselves from fluctuations in the broader economy.

23: Consider a pivot: Pivoting means adjusting your path to meet customers where they’re going. Sometimes a pivot can be planned, but more often it involves making in-the-moment calls on the field after the market has started to decline. For instance, a company that produces office furniture could pivot to producing home office furniture during a recession when more people are working from home.

24. Don’t skip nurture campaigns: Loyalty campaigns geared toward recapturing past customers or increasing penetration with current customers can help keep the customer base healthy. In many cases, it can be more expensive to attract new customers than to encourage repeat business from existing ones. Targeted promotions, especially those that align with customer pain points, can help increase market share if competitors go dark.

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Investing strategies during a downturn

When it comes to investing during a recession, there are a few key areas a business should consider:

25. Diversification is crucial: Diversification means being open to new opportunities and ideas, and adapting quickly to changing market conditions. By diversifying, businesses can reduce their dependence on any one area of their business and minimize the impact of economic downturns. For example, a company that only sells to one industry may consider diversifying its customer base to include other industries. A business that only operates locally may expand its reach by selling online or opening a new location in a different region.

26. Invest in adaptable technologies: During a recession, businesses that are able to adapt to changing market conditions are more likely to survive. Investing in technology that allows you to switch up your business model, pivot to new products or services, or better serve your customers can be a smart move.

27. Invest in your people: Don’t overlook the power of investing in your people. Investing in employee training and development can improve your workforce’s skills and knowledge, making your business more competitive and better prepared for whatever economic challenges come your way.

28. Invest in sales and marketing collaboration: Alignment and collaboration between a company’s sales and marketing teams, sometimes referred to as “smarketing,” aims to achieve common goals, such as driving revenue growth and increasing customer acquisition and retention. While it may be tempting to cut back on marketing expenses and sales promotions during a recession, investing in this collaboration can be a valuable strategy for businesses looking to maintain brand awareness and customer loyalty. By bringing together sales and marketing teams, businesses can leverage their combined expertise to create a cohesive strategy that supports long-term success.

29. Invest in strategic partnerships: Some strategic partnerships can help make your products or services more attractive to customers. Select partners who can enhance the perceived value of your product, as customers during difficult times usually prioritize attributes such as quality, value, and durability. For example, a restaurant could partner with a local winery to offer wine tastings or pairings. This can help businesses reach new audiences and generate additional revenue.

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More recession-proof business ideas to consider

As we’ve seen, there are many strategies businesses can use to weather economic downturns. But you can also start with a recession-proof business idea.

As described earlier, these businesses are essential because they provide goods or services that people need regardless of the economic situation or offer products or services that become even more crucial during tough times. Here are more recession-proof business ideas:

  1. Senior care services: As the population ages, the demand for senior care services such as home care, assisted living, and hospice care continues to grow. These services are typically paid for by insurance or government programs, making them more stable during tough economic times.
  2. Mental health services: Demand for mental health services such as counseling and therapy has grown since the pandemic and the rise of remote work as people seek help to cope with the stress and isolation that comes with these changes. Furthermore, technology made these services easily accessible in the privacy of one’s home. This increased demand for mental health services is expected to continue even during economic downturns.
  3. Debt collection: Debt collection companies tend to do well during recessions, as more people struggle to pay their bills, and businesses need help collecting on unpaid debts. However, it’s important to note that debt collection is a heavily regulated industry, and businesses should ensure they are compliant with all applicable laws and regulations.
  4. IT services: As businesses increasingly rely on technology to streamline operations and reduce costs, the demand for IT services such as cybersecurity, cloud computing, and data management has grown significantly. With the help of technology, businesses are able to reduce overhead costs, making these services essential for companies to function, even in times of economic uncertainty.
  5. Online retail: While retail businesses in general may struggle during a recession, online retailers have a unique advantage. They have lower overhead costs and can reach customers across the globe, allowing them to tap into a larger customer base.

Service-oriented businesses like pet care, home delivery, cleaning, repair, and home improvement could also make for good recession-proof business ideas regardless of the economic situation.

By exploring these ideas and understanding the needs of their customers, entrepreneurs can build businesses that are less affected by economic downturns and can continue to thrive in any economic situation.

Overall, proactive businesses that take action to prepare for a recession put themselves in a position to emerge stronger on the other side.

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