Having a recession-proof business is only more important in today’s climate. With the economic realities of the modern world being more difficult to predict and sometimes more drastic in their suddenness, knowing how to best mitigate the risks of a recession to your business is a must.
What is a recession?
A recession is a period of significant and/or prolonged economic downturn. They are often characterised by declines in some or all of the following:
- Economic activity
- Gross Domestic Product (GDP)
- Employment
- Business spending
- Consumer spending
Recessions pose a number of risks to businesses including increased operating costs, lower sales, and more restricted cash flow.
How can a recession affect your business?
Market recessions can pose a number of risks to a business. For one, as consumer spending decreases so will sales and revenue for many businesses. The tighter credit market conditions will dampen consumers’ ability and willingness to spend, and as demand shrinks the increased competition will make for a harder business environment.
The knock-on effect for a business includes potential layoffs, increased operating expenses and interrupted cash-flow which can exacerbate the already tight market conditions.
Can you recession-proof your business?
Recessions are out of any business’s control but with careful planning and strategic decision-making, it is possible to recession-proof one’s organisation to navigate through the tough economic periods successfully and smartly.
A large part of that proofing strategy is securing the right financial support, but we’ll get to that shortly.
How to recession-proof your business
1. Diversify your revenue streams
Businesses heavily reliant on one product, a single service or a very limited target demographic are more vulnerable to economic recessions. The more diversified the sources of your revenue are, the better able you will be to weather the storm of a recession’s impact on one or a few of those streams.
2. Build cash reserves
Maintaining a healthy cash reserve is a fundamental part of protecting your business from the impacts of a recession. Cash flow can be disrupted significantly with a decrease in consumer spending, so having enough capital to cover ongoing expenses such as payroll is critical to survival. In fact, recessions can also present opportunities for you to invest some of that cash into building a stronger financial safety net for the future.
3. Reduce unnecessary costs
Cost-cutting is, unfortunately, an essential and common activity during a recession. Take the time to review your expenses carefully and identify areas where there is unnecessary expenditure that can be trimmed. For example, you may need to renegotiate contracts, eliminate non-essential services, or reduce investment in certain growth strategies.
4. Embrace trends and technology
You can’t produce a diamond without pressure! Recessions are certainly periods of high stress for business owners but embracing technological developments and trend evolution can help you make the most of a recession and end up improving your business’s efficiency and competitiveness. Automation and digital tools can help to reduce costs, increase productivity and help you adapt to changing market conditions that will end up leaving you coming out on top.
5. Explore financial solutions
Ultimately, the success or failure of a business throughout a recession is its ability to sustain itself financially. While cash reserves and similar strategies are ideal, they are not always realistic. That’s where financial solutions, such as invoice finance, can come into play.
Choosing the right lender
If you are considering exploring the financial solutions available to you, make sure to follow this step-by-step process.
1. Find a lender with the right reputation
Make sure you spend time conducting due diligence by checking online reviews and asking for referrals from other businesses. You need a lender with a reputation for helping businesses during challenging times like a recession.
2. Transparent terms
Business loan and financial solution terms can be complex at the best of times. Without clear terms and transparent agreement on fees, interest rates and repayment periods, you shouldn’t commit to any financial instrument.
3. Flexibility
Every business is different and unique, and therefore requires a bespoke financial solution for them. There is rarely a one size fits all and a lender in consideration should be willing to work with you to find a solution that works for you.
4. Accessibility
During times of financial distress, such as a recession, businesses need accessible, quick and reliable lines of credit. Make sure to ask any lender in consideration how accessible their financial solutions are before signing an agreement.
5. Eligibility criteria
In addition to the swiftness of the approval process, make sure the lender you’re in talks with understands your eligibility for particular business loan products to save you time, cost and hassle.
6. Ongoing customer support
The right business lender should treat you as a partner more than a client, and consider your relationship as more than just a transaction. Excellent, local and personalised customer support is a must have with any business lender to ensure that you have clarity when needed and assistance when required.
ScotPac – helping recession-proof businesses for over 30 years
ScotPac is more than just the largest non-bank business lender in Australia. Our specialists are experienced in working with small and medium sized enterprises to help them find fast, flexible and simple funding that suits their needs.
When it comes to recession proofing your business, you need an expert who can tailor the right financial instrument to suit your cash flow needs and fund long-term sustainability and even growth.
ScotPac has offices throughout Australia and New Zealand, so accessing a local lending specialist is easy. To find out more about how we can make the hard times easier for your business, contact us today.