AMB Performance Group Blog

Building Recession Proof Businesses

Posted on: August 09, 2022
Recession Proof Business

A recession. Just the word alone is enough to create fear for many business owners, yet economic recessions happen more frequently than you might imagine. In fact, on average, they happen every six years. While some last just a few months, others can last a year or more, creating serious issues for many companies. While you can’t prevent a recession, you can prevent one from damaging your company. What do the best recession proof businesses have in common? What does recession proof mean and how does it apply to your company? Keep reading to learn more. 

Are There Actually Recession Proof Businesses?

Some industries tend to fare better during a recession than others, and while companies in those industries may still experience the struggle many of their customers are feeling, they tend to do better because the items or services they market are either necessary or targeted at the right businesses or people.

Companies associated with the healthcare industry are often considered recession proof businesses. Customers will need their services regardless of the greater economic climate. Whether that means pharmaceuticals and care supplies, or care services themselves, healthcare tends to be a viable industry that can survive almost any economic forecast. 

Financial companies, too, are almost always in demand. Accountants and financial advisors tend to do quite well during a recession because many businesses deal with their concerns about lack of cash flow by looking for financial guidance. Both individuals and businesses need help dealing with financial issues, so they turn to these professionals for bookkeeping, accounting, and financial advice. There are exceptions, of course, like in the 2008 recession, which was largely caused by big financial institutions.

Not all industries contain recession proof businesses, and not all recession proof businesses are exclusive to certain industries. So, how can you turn your company into one of these recession proof businesses? Let’s see.

What Does Recession Proof Mean For Your Business?

If you’re not in one of those industries, there are several things you can do now to begin preparing for the next economic downturn. 

It all begins with better planning when you don’t see a recession on the horizon. Start by assessing your needs now. Think in terms of your workforce needs, your physical space needs, and your budget needs. How many employees do you need to make your business operate at peak levels? How many do you need to survive? Understanding exactly what those numbers look like before, during, and after a recession is critical to the survival of your business. Likewise, you’ll want to consider your physical space needs. Your footprint is expensive. How much of the space that you’re using right now is wasted? Could you do something smaller that costs less if you had to? Is it wise to make those moves to do it now? Finally, think about your budget. First, make sure you’re always operating within your budget. If a recession hits immediately, you’ll know exactly what you need to do. More than that, though, ensure your cash flow forecasts are on par. Your cash flow is key during a recession. Understand your liquidity options should they become necessary. Whether that means taking out a loan – remember they get more expensive during a recession – or alternative financing options, planning ahead for cash flow is an absolute must. Pay down your debt so you have higher capital amounts to draw on should a recession hit, and make certain your operating expenses are as small as possible. 

At this stage, you’ll also want to think carefully about your company as a whole. What are you doing to ensure you’re better than your competition? Creating your space as a market leader is absolutely essential if you’re going to survive any downturn. Know your products’ strengths and weaknesses, and how they compare to your competitors’. Know, too, what your marketing KPIs look like on a regular basis. Anything that’s not working in terms of marketing should immediately be cut. 

Make certain, too, that you have an emergency fund on hand to cover any expenses for at least six months. Not every recession comes with warning signs. As you build your emergency fund, it may be useful to take a hard look at your current risk tolerance levels. How adaptable are you, your staff members, and your company itself to the risk, and changes that may come with that risk? Knowing that will help guide your decisions both in and out of a recession. You may want to consider doing some prework on financings like accounts receivable, factoring, or purchase order financing if you’ve never used them so you know how to move forward when things get tough. 

It may also help to create an action plan your business can follow the moment things begin to move into crisis mode. Know how to immediately reduce your overhead. Simple things like shifting vendors or eliminating travel spending could all be part of that plan. Downsizing your inventory should be part of that plan, too, as inventory gets quite expensive when a recession hits. While you’ll need to look at tougher changes to make should things get too bad – like employee layoffs – be sure to develop your plan in steps so you know how to move through it without doing too much damage to your company as a whole. 

Once that downturn happens, there are some other tasks you’ll want to tackle during the rougher days.  It starts with adapting your business. Perhaps you could add revenue streams like selling directly to consumers or selling online. You may also be able to modify your offerings to make them more attractive. Maybe you change the product itself or the delivery method. Perhaps you begin offering product assortments you haven’t in the past. Adaptability is key during tough times.

You’ll also want to make a real investment in your clients themselves. Stay close and work to understand their changing needs. They’ll appreciate the gesture, and you’ll be at the top of their list when they need you. You should also immediately put your recession plan into action. Follow the steps you created before the recession hit. Stay on top of your numbers, continually being aware of where your business stands financially. Continue to invest in your business – you still need marketing during a recession as well as new technology – and don’t neglect your employees. Recessions can be particularly scary times, but if employees know you’re on top of things, they’ll stay at higher levels of productivity. 

Building a recession proof business is the only way to ensure your company can weather anything. As the next downturn hits, remember to be patient. Wisdom and experience matter during a recession. To learn more about how to build a stronger organization or to have a free company health check, give us a call today.

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