Helping your business survive an economic downturn

An economic downturn doesn’t necessarily spell doom for a business. Instead, it could help highlight cracks in a business plan and help you build a better one. Business strategies during a recession need to be backed by analysis, experience and solid judgement.

An economic recession is a challenging time for business and consumer confidence. A survey from Pollara Strategic Insights found that Canadians’ 2024 financial outlook was among the most pessimistic it had recorded in 29 years, with 82% of Canadians believing Canada is in a recession. The poll found Canadians don’t expect 2024 to be any better, with 53% expecting Canada’s economy to worsen and only 15% expecting it to get better.

Defining an economic recession

A recession is a period when growth slows down significantly. This is often seen when the country’s Gross Domestic Product, or GDP, decreases for two consecutive quarters. Other signs of a recession include a higher unemployment rate, less consumer spending and reduced industrial production. These indicators show that the economy is shrinking rather than growing.

Recessions can happen due to various reasons, such as sudden increases in prices, financial crises or unexpected events such as wars or pandemics that can impact the global economy. For example, if oil prices suddenly rise, it can make other goods more expensive, leading people and businesses to spend less. This reduced spending can cause businesses to cut back, leading to job losses, which then further decreases spending and deepens the recession.

The effects of a recession are widespread and can last for a long time. Governments and central banks often try to counter a recession by lowering interest rates or increasing public spending to boost the economy. However, these measures don’t always work quickly and the economy might take a while to recover. The social impacts, like increased poverty and inequality, can linger even after economic growth improves.

How to survive a recession

Navigating a recession can be challenging, but with the right approach, a business can not only survive but potentially emerge stronger. The following strategies could help a business endure tough economic times and even capitalize on opportunities that arise.

Know where the business stands

Recessions impact every business differently. It is essential to know the break-even point – where total revenue equals total expenses. Analyzing the books will help determine whether increasing revenues or lowering costs is necessary.

Improve cash flow

Cutting any expenses that do not contribute to profitability is crucial. Lowering fixed expenses should be prioritized. This could be done by negotiating with suppliers for lower costs in exchange for longer-term contracts to reduce inventory expenses.

Focus on marketing

Marketing during a recession can be tricky because many consumers are trying to spend less. Offering discounts or allowing customers to pay by installments can be effective if feasible. Advertising and social media should reflect empathy, togetherness and empowerment, recognizing that people are going through tough times. Emphasizing the value and quality of the product or service can remind loyal customers why they chose the company in the first place.

Avoid slashing salaries

Cutting pay to save money risks demoralizing employees. Instead, eliminating unnecessary overtime or controlling costs may be a better option.

Diversify revenue streams

Exploring new products, services or markets can reduce dependence on a single source of income. By offering a broader range of options, a business can attract new customers and create additional revenue streams that help stabilize the company during uncertain times.

Strengthen relationships with customers

During tough times, loyal customers are invaluable. Strengthening relationships with them through excellent customer service, personalized deals, or regular communication can keep them engaged. Happy customers are more likely to remain loyal during a recession.

Invest in employee training

Rather than cutting costs by reducing staff, investing in employees can be more beneficial. Providing additional training can help employees acquire new skills, making the workforce more versatile and the business more resilient. Skilled employees can also make it easier for the company to pivot if market conditions change.

Monitor economic indicators

Staying informed by closely monitoring economic indicators relevant to the industry is vital. Understanding trends allows for anticipating changes and adjusting strategies accordingly. Being proactive rather than reactive can make a significant difference in weathering economic challenges.

Conclusion

Running a small business during a recession is challenging. But a recession doesn’t have to spell the end. Coming up with a strong, well-executed plan and staying focused can help a company come out stronger on the other side of an economic downturn.

Courses at University Canada West give you the knowledge and practical tools to make well-informed business decisions on this and other business topics.