Ideas on how to make your business recession-proof
There’s been a lot of talk lately about recession, and it’s got business owners understandably nervous. But at least part of that anxiety may come from a lack of understanding of what a recession actually is and what a business owner can do to reduce its impact.
Here’s what you need to know.
What is a recession?
The general consensus is that a recession is defined by two consecutive quarters of declining gross domestic product, or GDP. This means that the country produced less stuff for two quarters in a row than it did the prior quarter.
The National Bureau of Economic Research, in its Business Cycle Dating report, notes that a recession “involved a significant decline in economic activity that is spread across the economy and lasts more than a few months.”
A recession is typically accompanied by an increase in unemployment. That’s not the case right now, as you know if you’ve tried to hire lately.
The official position is that we are not in a recession right now, but that doesn’t mean you shouldn’t be prepared for one if it comes.
Here are some things you can do to minimize the effects of a recession on your business.
Starting a recession-proof business
A recession may not be the most popular time to start a business, but that doesn’t mean it can’t be done. Here are some things to keep in mind.
Providing a service to other businesses is a good way to make money in a recession. Other businesses may prefer to hire a contractor rather than an employee to save on benefits or if they have a fixed-term project they want to get done. A consulting business will often do well in a recession because the client is paying for only the services they need, and not additional overhead costs.
Provide a necessary product or service. Discretionary purchases, such as vacations, home décor, or dining out, are often the first things to get cut from consumer budgets when a recession is looming. Think of businesses that provide the opposite of these types of purchases – things that people need, that will help them actually save money in the long run.
Some businesses that will likely do well in a recession include:
- Repair services. People will want to repair their homes, cars, appliances, and other big-ticket items rather than buying new when money is tight.
- Care services. Child care and elder care services can free up primary caregivers to get a second job or increase their hours to bring in more income.
- Consulting services. Consultants provide services on an as-needed basis. They come in, solve a problem, and then leave, making them a cost-effective choice when money is tight.
A note about franchises:
Buying a franchise can be a smart way to start a business in a recession. The franchisor provides the tools and resources to get you started. You have instant brand recognition which makes it easier to attract both customers and employees. Just make sure that the franchise provides a recession-proof product or service.
Growing your business in a recession
There are several tactics you can use to make sure your existing business thrives, even when the overall economy doesn’t.
Take a good, hard look at your product or service mix. Keep the offerings that sell best, and those that have the highest margins, and discontinue the rest. Or, if you don’t want to discontinue them completely, ‘pause’ them until conditions improve.
Raise prices judiciously. If there’s a way to reduce your costs and keep your prices the same, that’s the best-case scenario. If you can’t do that, try to offer something extra if you must raise your prices. Consider a subscription model or loyalty program that will keep your customers coming back – and choosing you over the competition.
Trim your costs where you can. Review your expenses to see if there are things you are paying for that you really don’t need. One place where you don’t want to cut back: your business insurance. Paying a fixed cost for your insurance policy is far better than the possibility of a much larger, unknown cost that could come from a lawsuit or claim. If you don’t have business insurance yet, get a quote today.
In a recession, it’s important to remember the old adage, ‘this too shall pass.’ Taking steps to prepare your business for recession is wise, but keep in mind that some day – hopefully soon – the economy will be on the upswing again.