How a Business Can Survive an Economic Downturn

Even the most successful enterprises are not completely protected from the impact of market and economic conditions. Economic downturns occur in the economy for various reasons. Recessions are usually caused by factors largely beyond the control of individual organisations and have industrial, national or even global consequences. 

Although a strong economy is a basis for stability, it still has no clear influence and does not determine the future of business. There are actions that leaders can take to better protect their company's finances in difficult times. To overcome the crisis, the company's CEO should develop a clear business strategy.

What Should Businesses Do in a Downturn?

The crisis forces us to reconsider the company's strategy, take a fresh look at the business and look for new incentives for development. With the right behaviour, it can become a time of realisation of the opportunities that open up. 

We would like to share some strategies that could help businesses survive an economic downturn. We have prepared 12 points you can focus on in tough times.

1. Analyse the Current State of Affairs

Recessions affect businesses in different ways: they can affect the industry in which you specialise in only indirectly, or can severely damage your business’s well-being. Successful companies at the time of the crisis conduct an immediate analysis of the current state of affairs. Every business leader needs to know the break-even point, that is, where the total income of the business equals the total expenses. Analyse your ledgers to see if you need to increase revenue or reduce costs.

2. Improve Cash Flow

Minimise any expenses that don't help your business to make money. Consider ways to reduce fixed costs. For example, you can reduce the cost of inventory: use an equipment lease with a reliable guarantee instead of buying it. Also, you can try to negotiate contracts and enter into long-term agreements with suppliers to reduce costs in this sphere. Reduce the number of loans by as much as possible. 

Streamline reporting and take measures to increase efficiency and transparency. Constantly monitor the cash flow and sources of capital and generate frequent and detailed cash flow reports. You can use online accounting automation services, such as Payrow. 

3. Manage Staff

You need to care about having an up-to-date human resource (HR) management plan. Use your plan to detail personnel costs, which will allow you to determine the cost of your products or services accurately.

Boost motivation by communicating clearly to your employees what is happening in the business. Try to involve them in the decision-making process to find solutions together. On the contrary, if you take pay cuts to save money, you risk demoralising your employees. Instead, you can consider eliminating needless overtime work.

4. Build a Marketing Strategy

Marketing in a recession can be difficult because consumers tend to spend less. A stressful period allows company leaders to understand how prepared marketers are for crises. Here are some things you can do to modify your marketing:

• Analyse whether you can afford to offer discounts or pay in instalments. 
• Use the target, as it gives the maximum base of potential users.
• Add content stories that will help increase customer loyalty. 
• Emphasise your concern for customers and show empathy and cohesion. 
• Think about making your goals relevant, achievable, and measurable. 
• Study free marketing tools so as not to overpay.
• In advertising, highlight the value and quality of your products or services. Focus on communicating your competitive advantage. 
• Make a unique sales offer to stand out from the competition. Always evaluate yourself in comparison with your competitors, making sure that you have clear superiority.

5. Make Customers a Priority

If your business has high-quality customer service and provides them with everything they need at a reasonable price, in other words, meets their expectations, you will retain your customers and attract new ones. With the right approach to the needs of the market, you have a better chance of increasing your customer base. What’s more, taking advantage of new opportunities in a crisis can open you up to new markets or products and services.

6. Be Innovative

The development of innovative practices will help your business adapt to changing market conditions and remain in demand. You should analyse how the introduction of new technologies increases your efficiency, whether it will be costly and whether it will increase competitiveness. For instance, you can install a customer management system or bring your business online.

7. Take Advantage of Networking

A wise man said: if you're not networking, you're not working. Undoubtedly, networking is useful for businesses, and during an economic downturn, networking and cross-industry communication provide an understanding of how other enterprises are developing. You can also discover new opportunities and increase the number of suppliers and business partners. Think about interacting with other companies by offering additional services and using business process outsourcing.

8. Seek Assistance

Here are some points that will show that you always have someone to ask for help. As a business leader you could:

• Contact a financial adviser or business consultant, including professional accountants and specialists in crisis periods and sustainability strategies. Such connections will help you survive the economic downturn.
• Filter the news stream. Study only the information that affects your business. You can delegate this task to a personal assistant or colleague.
• Organise joint purchases from suppliers with other firms. This is advantageous, since the price may be lower due to the large volume.
• Study information about governmental support, possible tax benefits, deferred tax payments or mandatory retirement contributions.

9. Stay Conservative

In times of recession, avoiding radical changes and having a conservative approach can be useful for your business. The task of a business leader is to keep the organisation afloat. Save cash or keep a large cash reserve on your balance sheet while waiting for investment and acquisition opportunities. 

10. Set Up a Savings Account

Keep an emergency high-yield savings account for the business. The free cache is invested in a highly profitable account and is not withdrawn until a serious need arises. The company's employees regularly check expenses and make sure that funds for business goals are not spent for other purposes. A savings bank account helps a business to receive a bonus for savings.

11. Diversify Your Sources Of Income

Diversifying your revenue stream can help reduce downturns for your company. For example, if a company focuses only on real estate development, work can almost stop during a crisis. This was the case with many companies in 2008. The way out is diversification, for example, in management and leasing. Thanks to this decision the company will suffer less than its non-diversified competitors.

12. Design a Corporate Risk Management Plan

A tactical move would be the development of an enterprise-wide risk management program. Alternative risk management solutions can be provided with the help of third-party insurance companies or created as a subsidiary of private insurance. As a rule, deductible premiums paid by an enterprise create a claim reserve in a subsidiary that can help offset various qualified risks that may arise during a recession.

Payrow Financial Accounting Tools

So, now you know about most of the possible implementations and solutions to support your business in difficult times. Despite the economic difficulties, the business has many exit options. Pay attention to the analysis, strategy development, and creation of transparent reporting. And we, in turn, can help you organise a simple and understandable system of accounting and tax control. Payrow company makes running a business simple. If you need some help managing your small or medium-sized company, we recommend that you check our website and explore our services. If you would like to open an account and let us simplify business management, you can easily register an account here.Automate routine business processes with Payrow!