What to do if there is a recession
The big question right now is what to do if there is a recession.
Our answer is panic!
Just kidding… you know we have your back on this.
We have tons of advice on what you have to do if a recession hits and how you can prep your business. But before we get into all that, we kinda need to know what a recession actually is, right?
So, what is a recession?
In its most basic sense, a recession (a macroeconomic term) is when a country encounters an economic decline. This has usually been recognised as two consecutive quarters of economic flunk, as reflected by GDP and a rise in unemployment. However, times have changed, and two consecutive quarters of decline in GDP is no longer how the National Bureau of Economic Research (NBER) identifies a recession. Now, the NBER considers a recession to be a significant decline in economic activity across the economy that lasts more than a few months. This is usually visual in real GDP, income, employment, and the lack of Marks & Spencer shoppers.
Well, what does this all mean for you?
Recessions can have a wide range of effects on individuals and organisations.
We all fear hearing Alan Sugar’s catchphrase “you’re fired”, but unfortunately, this is all too common during a recession. When the economic activities slow, businesses cut jobs and expenditures for advertising, training, our favourite office snacks and more. Continuing your education, training, and staying up-to-date on your industry’s trends could help you have an edge at staying in your current role or help you kick out the competition when looking for a new one.
Consequences for health
Excessive firing during a recession is not the only impact on workers. The Social Security Administration claimed that the most recent recession (2007-2009) had many consequences for workers that sadly lost their jobs. Things like employers’ contributions to retirement plans, financial security, and health-related concerns also arose. The government was more likely to assist those who had lost their jobs after the recession. This includes disability insurance and supplementary security income.
How am I supposed to prepare for this?
Although we can’t control when doomsday occurs, there are some “security measures” that can be undertaken to increase chances of survival, a bit like a zombie apocalypse.
Protect your business relationships
The building blocks for any business are your relationships, so keep your friends close and your paying friends even closer. Whether these are your stakeholders, customers, suppliers, employees, etc., it is beneficial to maintain or grow these relationships as they can help protect your business in a recession. How these relationships assist you will differ depending on their value, but they can make a difference. For instance, your long-term customers are less likely to have their heads turned by lower prices elsewhere because they trust your business.
Diversify your products/services
A diversified business has more avenues of revenue. During a recession, certain products and services take a hit due to the lack of customer interest. If a company can switch up its offerings, this could mean that one or more products being purchased are the ones that keep the business afloat as it’s not as drastically hit in comparison to a mono-product or service business.
Minimise your debt and expenses
We all know that debt is two-faced! When the economy is positive, it can be used as a tool for financial growth, which is beneficial to businesses. But it can also be a major downfall if it’s not managed properly and a company finds itself drowning in a lot of debt. A recession can impact this as a business may not be generating a substantial amount of money to counteract any debt.
Don’t stop marketing
Don’t make the most common mistake! Most business owners try to cut costs when a recession hits, and this usually starts with stopping marketing activities. You should not stop your marketing completely. By all means, scale it back but stopping marketing completely is not your best bet as it can assist the survival of your business during a recession.
The concept of this is simple. Continue to invest in your marketing efforts that help educate and inform your current and future customers on how badly they need your product/service during such dire times. When you continue to market, it encourages your customers to keep supporting your business at a time when they are looking to make informed changes to their spending habits. You can also provide a well-needed escape for your customers while they are ice cream stuffing.
Keep a minimal workforce
Laying off employees is one of the hardest things for a business owner to do, so we’re told… Unfortunately, this may become necessary during a recession when the business activities have taken a swan dive.
This is why it’s essential to keep the minimum staff for your company at all times. Bonus, it keeps your salary costs low! Is your business doing really well? Awesome, but it doesn’t mean you need to go on a hiring spree. If you need to hire more staff, why not look at hiring part-time workers or freelancers first. By doing this, you’re keeping your team at a manageable level and won’t have a larger, more expendable workforce.
It’s not all doom and gloom – we promise!
A recession can seem like a dark cloud looming over your business, but it’s important to remember that it’s not all bad. There are also some positives that come out of a recession that can positively impact your revenue and customer base.
Some businesses thrive
Fingers crossed! Recessions tend to hit a lot of companies hard, but some industries have historically triumphed over others during a recession. Some businesses that tend to do well are:
- The sweets industry. This is a safe space here, so we can all be honest – we all binge eat sugar when we’re stressed, so this isn’t a surprise. Cadbury increased their product sales by 30% in 2008 during the Green Recession (2007-2009). Nestle also reported an increase of almost 11% in their profits. Did you know that chocolate bars such as Mars Bars and Snickers were invented during the Great Depression? Yeah, we didn’t either!
- Maintenance services. Consumers tend to repair items instead of buying new ones during recessions as a way to save money which boosts the maintenance industry. Why buy a new wardrobe when your Dad can build one in the shed, right?
- Grocery stores. With a lack of stability during recessions, customers spend more in supermarkets and less on dining out. Because customers are looking for old-school recipes that can last the next 20 years, they are buying more groceries, giving supermarkets a lovely little boost.
- Bars. According to the National Institutes of Health, tough times increase the likelihood of binge drinking. What a surprise!
It balances everyday costs
Unfortunately for us, high employment levels encourage businesses to increase their prices. Booo! However, high unemployment means that companies cut prices to move their products and services. Woo hoo!! Those who have a fixed income or keep most of their money get to reap the benefits of lower prices.
Think of a world that never had an economic decline! If left unchecked, growth in wages would lead to inflation, and everyday goods would skyrocket in price. Recessions basically allow us to hit the reset button on the economy so that it’s manageable for the majority.
Everyone is affected differently during a recession. For example, some industries tend not to suffer during a recession as their goods/services will always be needed. These include car repair shops and a girl’s best friends, the hair and nail salons!
So there you have it, a deep dive into recession and what that could mean for your business. As we said, it’s not all doom and gloom – but we know it can be a stressful time. We’re a small business too, after all. So just remember, we’re all in the same boat.