The possibility of an economic downturn or a recession is a scary idea for both big and small businesses alike. On a grass-roots level, while there is little you can do as a business owner to prevent a recession, there is a ton of what you can do to protect your company from it.
During the 2007 recession, several companies, both big and small, suffered at the hands of economic depression and were driven out of business. However, businesses that maintained a proactive approach and adopted smart strategies remained safe and made it through the almost two-year-long depression.
Since it is forecasted that the American economy will once again face recession in 2023, it would be helpful for businesses to gear up and learn how to face it. Given below are five strategies that can help companies survive the oncoming recession in 2023:
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Cash and liquidity management
Cash management and a constant flow of profits are what make most businesses profitable. Businesses need an apt amount of cash flows to smoothly run daily company operations, because most businesses have cash entering into their system at the end of every month, and yet their obligations cannot be waiting to be paid off till the month’s end.
Hence, to grow, companies need to ensure they have a constant flow of cash by either planning their petty cash accordingly to planning their payments to match their receivables. The right way to do so is by adopting a cash liquidity forecasting solution, which will help companies make short-term and long-term decisions.
By adopting a cash flow and liquidity forecasting solution, companies will be able to ensure timely payments, ensure effectiveness in cash deployment, and also reduce their short-term interest payments or borrowing costs. Companies can also project future cash flows, identify cash shortfalls, and understand how to utilize cash surpluses.
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Financial consolidation
Businesses that do not have sound financial and accounting management often struggle during economic downturns and they do not understand how to deal with their finances. During an economic downturn, companies have all the more incentive to manage their finances soundly as they might be looking for additional funding or short-term loans, which would require a thorough inspection of their business accounts.
Companies often run different lines of businesses, which may or may not be related, and have multiple accounting books for each. However, in the long-run such irregular accounting practices are not doable, and the solution for this is financial consolidation.
Financial consolidation, also known as group financial consolidation, is essentially how companies can eliminate the use of multiple spreadsheets for multiple lines of their business. Companies that wish to go global have to comply with international GAAP regulations and international reporting practices. Such software also allows you to automate your accounting systems and make the entire process streamlined.
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Customer retention
It inherently costs more to acquire a new customer rather than to retain an existing one. This statement holds true both during the good and bad flow of economic activity and even more so during a recession. This is essentially true because a recession comes by when consumer spending is at an all-time low, and during a recession, it would take quite some effort on the part of your marketing team to get new customers.
Hence, instead of searching for new customers businesses should focus on retaining existing customers. A recession is a time for businesses to show their customers that they have their back and build long-lasting relationships with them. One way businesses can do so is to pay heed to their customers’ complaints and fix all pertaining issues that they have with the company.
Since during a recession businesses do not have a new influx of customers, they get additional time on their hands to handle existing customers and form trust and loyalty. Their existing customers are hence likely to act as brand ambassadors and endorse their products.
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Core competencies
While you may be tempted to introduce a new service or product during a recession to garner more customers, it is rather advisable to stick to your core competencies. Many businesses tend to introduce entirely new affordable lines of their existing product hoping to make sales, but miserably fail. Not only does this cost them the money they spent on developing the product, but also costs them time that they could have spent elsewhere.
A recession is not the time to invest in a new venture with uncertainty about a return on investment, and it is high time that businesses finally understand this. Alternatively, businesses should scale back on the products and services they offer, and try to only keep their best-selling products alive to survive an economic downturn.
Businesses, both big and small, need to stick to what they know best in their selling experience and hence only focus on their core competencies during a recession.
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Technology innovation
While a recession is a time to lay low for most companies and not incur further costs, it is not a bad idea to leverage the power of technology and invest in technological innovation. The most successful businesses in this day and age are those that harness the power of technology, and to emerge from an economic downturn, your company needs to leverage the power of tech.
Companies should consider ramping up their IT infrastructure and investing in cutting-edge technology to streamline business processes and limit the requirement for human labor. Companies should also consider using technology to achieve synergies in terms of marketing, sales, logistics, and other departments.
When companies invest in technological innovation, they tend to become more productive, and that is essentially what you need to survive an economic downtown or a recession.
Conclusion
Businesses thrive on economic activity, and the opposite of it makes businesses struggle big time. Instead of finding themselves amidst an economic downturn and then creating a strategy, businesses should have a strategy on-hand and ready to implement in light of a recession. The above-mentioned strategies are likely to help any business achieve efficiency and productivity in their operations which is going to help them even after the recession has passed.
Disclaimer: This content does not necessarily represent the views of IWB.