Synopsis: A recession doesn’t necessarily have to spell doom for your business. Hence, in today’s article, we will be highlighting the various strategies that you can employ to successfully ride out a recession and thrive in the long term. 

Presently, the world is in turmoil over recessionary concerns due to soaring energy prices, continued supply chain disruptions, and negative impact on demand growth because of monetary tightening. 

If a recession—defined as two consecutive quarters of negative growth in economic parlance— were to come to pass, then many businesses are likely to find themselves stretched beyond their means to be able to survive. This is especially true for small businesses as they lack deep financial cushioning. 

But things don’t need to be hard for business owners. Indeed, a 2019 Bain study has summarized how companies that prepare for a recession in advance eventually manage to widen the profit and market capitalization gap in the subsequent expansion with those companies that do not have any contingency plans in place. Such winners have managed to lock in a 13% CAGR versus only 1% for those who don’t.  

The key to successfully navigating a recession, thus, lies in switching to a ‘contingency mode’ and not a ‘survival mode.’ So, as a business owner, how can you ensure that your business is recession-proof, and what strategies can you follow to survive an economic downturn? We recommend some ways below. 

1. Focus On Your Niche 

In a recession, a small business must focus its energies on its core competencies—its most popular product or service. You should scale back on weaker products and services. You should capitalize on your core product by finding ways of generating multiple streams of revenue.  

To illustrate, if you run a service-based model, you can experiment with subscription models by offering additional tier models, such as VIP tier, Founder tier, and Mobile-only Tier. Similarly, if you are concerned about your cash flow position, you can consider offering discounts on subscription plans in case of early renewals. 

2. Invest in Your Existing Customers 

Your best bet to ride out a recession is to invest in your existing customers. Your focus should be on building real relationships with your customers. This can be achieved by keeping abreast of the changing requirements of your consumers and adapting to them. Resultantly, you will be in a better position to preserve your revenue streams. This is very crucial as acquiring new customers becomes an ordeal during economic slowdowns. 

To prevent your existing customers from losing interest, you can run loyalty or customer incentive programs. You should also focus on providing good after-sales service and work on the feedback received. At the same time, diversify your revenue streams to minimize potential damage from the loss of a significant customer during a recession. 

3. Streamline Your Cash Flow 

A recession not only stresses out your profitability margins but also your cash flows. To illustrate, over 41% of the MSME businesses had either run out of funds or had only a month’s worth left during COVID, as stated by a LocalCircles study. Additionally, your suppliers and consumers are likely facing cash issues as well. In such a scenario, it becomes all the more vital for you to protect and streamline the cash flows of your business. 

One way to go about protecting your cash flows is to cut back on any unnecessary spending by analyzing your bottom line. Then, you can plow back these savings into necessary spending for your business. Furthermore, since a recession affects you and your suppliers alike, you can use this opportunity to renegotiate vendor agreements to get more flexible payment terms or more favorable prices. 

While it may feel like laying off your staff is an easier way to cut down on costs, this strategy can adversely affect your business’s productivity and reputation. Your cash flow levels will also depend on how deftly you manage your company’s debt, as meeting interest payments can be difficult during slowdowns.  

Remember, the key to surviving a recession is not to ‘grow at all costs,’ but rather to ‘grow smartly.’ 

4. Automate Your Operations 

Another way to cut down on your expenses is to digitize your business. Automate the operations that you have been carrying out manually wherever it is cost-effective to do so. This will provide your business with improved analytics, which can further help the management to understand the impact of the recession, and look for points for improving operations. 

A Dun & Bradstreet India survey has highlighted how 82% of small businesses have achieved a cost reduction (54%) and experienced enhanced competitiveness (51%) after digitalizing their operations. The survey states that globally digital adoption has accelerated by 7 years due to the COVID-19 pandemic. 

5. Don’t Stop Marketing 

Just because the economy is going through a recession and there is a need to get a hold of expenses, doesn’t mean that your business should stop all marketing. Instead, the focus should be on undertaking effective marketing that successfully reaches your target audience. Efforts should be made to maintain an online presence of your brand, especially if you are a D2C business.  

For this, you can start by consistently posting about your product offerings on all your social media networks. Additionally, you can send content-rich emails to your existing customers and entice them with discounts and events to purchase your products, without being pushy. There should be a heavy emphasis on the USP of your product to stand out from the crowd. 

6. Business Continuity Plan 

Small business owners should consider undertaking scenario analysis exercises and creating action plans to better navigate a crisis. With a contingency plan in place, business owners can avoid the errors that come with decisions taken under panic and stress.  

Such business continuity plans should also plan for an emergency fund that holds cash worth six months of expenses, including payroll, inventory, and utilities. This is especially crucial for smaller companies that can’t easily tap debt and equity markets to raise capital. 

7. Networking and Partnerships 

Small business owners should continue to network to understand the coping mechanisms being utilized by their peers. These mechanisms can then be modified and implemented as per your business needs. Alliances can also be formed with other businesses to make use of economies of scale. 

8. Get a Business Loan 

When survival is in abeyance, it is better to seek out financial assistance. The Indian government has been supporting MSMEs by offering guarantees on loan sanctioned and moratoriums on loan repayments – as was done during Covid-19. Many MSMEs have utilized schemes like ECLGS and Mudra Yojana during the pandemic to avail of collateral-free loans. 
You can also opt for a business loan or a line of credit for additional financing. This way, you can meet all your necessary expenses while minimizing your interest expenses, as interest is levied only on the amount that you have withdrawn from the sanctioned limit.  

Roar Out of Recession the Protium Way 

At the end of the day, the timely availability of financial capital will determine whether you will survive a recession to tell the tale or perish. 

Apply for a business loan at Protium to secure your business’ future. We offer collateral-free loans of up to Rs. 5 crores at competitive interest rates without any requirements of credit history. Call 8828827800 to get in touch with us!