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3 Steps to Prepare Your Business for the Coming Recession

Business Consulting | Posted on Jun 18, 2022 | Last updated on July 6, 2022

We are in a time when predictions for an economic recession are everywhere. Predictions range from a mild recession to a deep downturn in the economy. We are experiencing very high inflation, rising interest rates, supply chain disruptions, record low consumer sentiment, and a bear market. So when will a recession start? Some say we are already in one. Others predict late 2022 or early 2023.

Now is the time to plan and prepare your business. Preparing for a recession will make your business healthier and more profitable even if a recession does not happen. We recommend a three-step approach.

  1. Reduce costs and reduce low-margin sales
  2. Refocus or retarget toward profitable recession markets.
  3. Increase your marketing using money freed up in cost reduction.

Step One: Reduce Costs and Reduce Low Margin Sales

We have just come through a period of high growth, and you likely have added extra resources and staff to handle that growth. You may have added financial debt and increased inventories. You probably have some unprofitable products or customers. You will need to remove all these drains on your cash.

The first step is to remove any unneeded costs or debt to strengthen your business so it can withstand the economic storm ahead. Next, your focus should be on improving cash flow and making your business lean. Look at these areas in your business to free up cash.

  1. Sell off excess or obsolete inventories.
  2. Negotiate early payment terms with suppliers.
  3. Reduce your outstanding account payables.
  4. Send out invoices immediately.
  5. Cut unnecessary spending
  6. Reduce overhead staff.
  7. Eliminate or replace low productivity people.
  8. Reduce outstanding debt and exceptionally high-interest debt.
  9. Eliminate unprofitable products or services.
  10. Eliminate unprofitable customers.
  11. Close unprofitable locations.
  12. Create a weekly cash flow plan

Use this freed-up capital to build cash reserves for an emergency fund, reduce debt, and increase marketing to attract new customers. Most experts recommend a minimum of 6 months of operating capital as an emergency fund.

Step 2: Refocus or Retarget Toward Profitable Recession Markets

In a recession, not all markets behave the same. Many markets will shrink and will be struck. Still, others will boom and have their best years during a recession.

Early on in my career, I worked for a sporting goods company. One of their major products was arrows used for archery hunting. I took over the sales forecasting from the owner.  As I looked at their sales history, their peak sales years were during recessions for the prior 30 years. Sales were 20% higher during recessions. It was reasoned that people still needed to have fun even when it was economically dismal.  This sales trend continued to play out in future recessions.

Several industries are considered to be recession-proof. Here are some examples.

  1. Healthcare
  2. Groceries
  3. Household Staples
  4. Alcoholic beverages
  5. DIY repairs
  6. Cosmetics
  7. Discount Retailers
  8. Respected luxury brands

There are often segments within a market that will do better during a recession. For example, a painting company I work with does painting for commercial and residential customers. Their experience is that residential work will reduce during a recession, while commercial painting jobs will continue with little or no reduction. As a result, they are shifting their marketing to focus more on commercial painting for the next few years.

Now is the time to look at your products, services, and even where you sell to and figure out which will do best during a recession and which will do worse. What markets, customers, products, or services could you shift to will do better during a recession.

Market / Brand Analysis

Look carefully at which of your current customers consume a lot of resources and return low revenues. Then look at your most profitable customers. Can you replicate your best customers and move away from your lowest profitable customers?

Decide what your marketing focus will need to be to give you the most profitable, consistent revenue for the coming few years. 

Develop profiles for your ideal customers from the markets you want to reach during the recession.  What problem will you solve for them?  This should be a problem that will arise from the coming recession. How will you solve this problem better than your competition? What are the critical factors that trigger them to decide to buy?

Identify at least five competitors in this new market segment. Look at how they are serving that market. Look at what they are doing well and incorporate that into your plan. Look at what they are doing poorly and work solutions into your plan.

Reposition your brand to stand out from your competition. Look at your messaging, aesthetics, offers, and differentiation. Your brand message should speak to your target customer. Decide how you will build trust with your brand.

Step 3: Increase Your Marketing Using Money Freed Up in Step 1

Once you have defined your brand message and the recession markets you want to reach, you must ramp up your marketing and target your new needs.

Update these to have a consistent look and message across all your marketing:

  1. Branding: Does your logo, colors, and brand story need to be updated?  Does your branding position you as a leader? Look at your competition in your new target markets and redesign as needed. 
  2. Call to Actions: Do you have a clear path to action that you want prospects to follow? This applies to your website, marketing collaterals, social media, etc. Visitors are more likely to act if you direct them to.
  3. Website: Rewrite your website content and menu navigation so it is consistent with your brand story, positioning, and new markets you are targeting. Does your website content answer the questions your customers are asking? Does your website design need to be updated?
  4. Reviews: Increasing the number of reviews helps prospects trust you. The easiest way to increase reviews is to ask your customers to leave a review every time you transact with them. Make it easy to leave a review by giving them a clickable link to follow.
  5. Google My Business: Update logos, images, content, and call to action to match your markets and your updated branding.

Design new Ad campaigns to reach your target markets. These could be online ads, direct mail (yes that still works), SMS or organically attracting traffic to your website using SEO.

Each campaign should be designed around a strategic message to reach your ideal client. In addition, campaigns need to separate you from your competition by showing how your business can uniquely solve their problems.

Now is the time to ready your business for the coming financial storm. The steps are simple, but very important.

  1. Cut out all unnecessary costs.
  2. Target profitable customers, products, services and markets
  3. Refocus your marketing and advertise to bring in new customers.

 In addition to strengthening your business and refocusing your marketing, delivering excellent customer service to your customers is important. 

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