Recession is a reality businesses deal with, regardless of size and domain. When a country experiences a sustained period of negative growth or economic contraction, businesses sustain the impact of the downturn. Production levels drop, job losses are rampant, and money runs tight for businesses and consumers.
Unfortunately, recessions are an integral part of the economic cycle, leaving no avenues for escape. The worst part is that only 43% of organisations have a plan for dealing with a recession. The remaining ones are at risk of failing when the disaster hits.
The global downturn trend started during the pandemic, sending small businesses and large organisations into a state of frenzy. Early in 2023, the IMF warned about a tough year ahead, with the US, EU, and China economies slowing down. The year started on a bad note for the US following the banking crisis in the country.
Being prepared is the only way businesses can save themselves from a financial crunch during a period of economic downturn. While there aren’t any shortcuts to surviving a recession, here are a few strategies to save your business from drowning.
Assessing your current financial picture is the first thing to do when a recession appears to be around the corner. Check your cash reserves, receivables due, and pending payments. How quickly are you exhausting your reserves? How soon are you likely to run out of money? Is your cash flow smooth and seamless?
Address any potential problems or bottlenecks in your cash flow sooner than later. For example, you can accelerate your accounts receivable by seeking advance payments and sending invoices out right after transactions. Convince vendors to give discounts and extend payment timelines to improve your cash flow. Once you know your finances well, coping with the recession gets easier.
Cash flow bottlenecks are impending for business owners during a recession because the economy is down as a whole. According to a CNBC survey, 81% of American business owners expected a recession in 2022. The year was slow, but organisations with financial support managed to stay afloat amid the crisis.
Quick business lending is an ideal solution in this context because it ensures fast funding without lots of paperwork. You need not stress about a massive upcoming payment or a financial crunch when you can access an unsecured loan with minimal effort and in the shortest time.
Unsecured Funding Source highlights the significance of such loans in a crisis, such as a looming recession. You can get money on the fly without paying an exorbitant interest rate or providing security to the lender.
Recession or no recession, cost-cutting is a wise move for organisations as it spurs savings for a rainy day. According to a Deloitte report, 66% of companies have cost reduction targets exceeding 10% after the pandemic. The crisis taught a valuable lesson that business owners can adopt for good.
Tightening your belt becomes even more crucial during a recession. You may have to make hard decisions about staffing, spend less on inventory, and renegotiate agreements with your suppliers. Switching to a hybrid work model makes sense if you want to retain your team yet cut on rental costs.
The recession has a domino effect, causing a drop in profits for most businesses as the buying capacity of consumers drops. While you cannot overcome a slowdown completely, you can optimise your margins according to the current situation. The right mindset can help you maximise your business potential in challenging times.
For example, prioritise your best-selling products and drop the underperforming ones to reduce your inventory. This way, you can lower your investment in inventory yet maximise your gains. At the same time, avoid price hikes because customers may shift to another seller. You can optimise margins with measures like reducing manufacturing costs or getting supplier discounts.
When the economy is weak, the Federal Reserve tries to help businesses stay afloat with a dollar reduction in taxes. Additionally, the regular deductions work in your favour. Cuts are often available for business expenses such as machinery, travel, accounting software, and advertising. Home-based businesses can claim deductions for a percentage of household bills.
You can leverage these deductions to reduce costs and improve your cash flow. Watch out for tax cuts and deductions and make the most of them. Expert advice from a tax specialist can be valuable in this context.
Recession is the last thing a business owner wants to deal with, but there is no way to avoid a downturn when the entire economy is affected. A financial crunch is bound to happen during a recessive phase. You can fortify your business with a proactive plan to deal with a slowdown in revenues and sales. Following these actionable measures can help you sustain through a recession, and thrive beyond it.
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