Are we headed toward a recession? If we have one, will it be deep and long or short and mild? I have no idea, but I subscribe to the belief that it’s better to be prepared for rough times than to enter them unprepared.
Many of the businesses that perished during COVID weren’t necessarily bad businesses; many went under because they didn’t have the resources to get through a bad year.
Here’s a pretty good list of things to do to help a business prepare for a recession:
- Assess your financial position: It’s crucial to know your financial position before a recession hits. Evaluate your cash flow, profitability, and debt level, and consider your ability to weather a downturn. This can help you to identify potential areas for improvement and develop a plan for managing your finances during a recession.
- Diversify your revenue streams: If your business relies on a single product or service, consider diversifying your revenue streams. Look for opportunities to expand your product line, enter new markets, or offer complementary services. If you run a restaurant, consider trying to boost takeout or delivery. Retail can always add new products.
- Cut costs: Identify areas where you can cut costs without sacrificing quality. This may include reducing unnecessary expenses, renegotiating contracts, and streamlining your operations. This is the easiest way to get your books in better shape. Every business has a certain amount of fluff, so focusing on reducing this can make a big difference.
- Focus on your customers: In a recession, customer loyalty becomes even more critical. Focus on providing excellent customer service, staying in touch with your customers, and finding ways to meet their changing needs. At Kona Impact, we love working on our customer database to get new projects.
- Plan for the worst: Develop a contingency plan for a worst-case scenario. Consider how you would handle a significant drop in revenue, loss of key customers, or other challenges that may arise during a recession. Some businesses plan for 3 months of bad times; at Kona Impact, we try to keep at least six months of expenses in reserve.
- Invest strategically: A recession can be an opportunity to invest strategically in your business. Look for opportunities to acquire new assets, hire new talent, or invest in new technologies to help your business grow. A great time to buy a competitor is when they are struggling. Recessions put almost all businesses in worse financial shape. Plan for it, and you might find some wonderful complimentary businesses to buy.