Written by: Christopher Chitty
With the world constantly embroiled in one financial disaster or another, it makes perfect sense to try and protect yourself from potential depressions or recessions.
While it is certainly possible to do more than just survive a recession, some companies succumb to panic almost immediately and this in turn affects their chances of staying afloat. They are many knee jerk solutions associated with a recession and the one that tops the list is to cut costs everywhere.
This usually results in massive retrenchments.
All of this is done in the name of survival but executed without first establishing a path for the company to take in order for it to survive. In such a scenario, the company is setting itself up to fall apart. If by some chance it survives the recession, it will have to claw its way back by rehiring people and re-pricing its products.
There are a few simple things to be mindful of during a recession and companies, especially small-medium enterprises (SMEs) and start-ups will do well to follow some of these guidelines.
1. Plan: Your first step is to have a plan of action and this plan cannot include general things like ‘cutting costs' or ‘retrenching that employee you never liked'. It involves your finances and income and it also details how and in which areas your business will grow. For SMEs, it is possible to realign your business plan and re-steer it down a path with lesser costs but more productivity. An example is if you run a sales company where your staff goes out to meet clients, you could save costs by turning into a telesales company. You are still in contact with your clients and this allows you to reach a wider range of people you couldn't before, such as those in foreign countries. You could either switch back once the economy stabilizes or stick with the change if it ends up being more profitable.
2. Costs: Once you've established your company's plan of action, now then is time to pick out areas you want to cut costs on. This could be anything from a product line that has not yielded much result to having everyone switch off their computers when they leave for lunch or home. At this point, you can also determine if you need to let some people go. For SMEs, this is not usually important as your staff population will be quite small but bigger companies have to consider retrenchment. Just remember that during a recession, the more people that are retrenched, the higher the chance of a stock market crash. Other areas could be rationing out your stocks and products or cutting costs on materials. Be careful of this as you do not want to go with cheaper materials and radically bring down the quality of your products. Cut down on company events and regular parties.
3. Clients: These people are important and during the recession, they've never been more important. Spend time with them and get to know what they want and do your best to accommodate as much as you can. Maintain your relationship with your clients during bad times so that when times are good, they'll reward you with more sales. People generally feel a sense of loyalty to companies that take the effort to consider their needs even when the going is tough. Keeping your client base for the upturn is extremely crucial.
4. Make things easier: Part of client management includes making it easier for them to buy from you. This ranges from repackaging your products, re-pricing them or providing longer instalment periods. While other companies are struggling to stay afloat, you need to remember that without your customers, you won't survive so do what you can to make things easy for them without financially crippling yourself.
5. Network: This is the chance to grow more than just your consumer-business relationships. Meet your competitors and other industry players and network with them. You may meet new hires or be presented with new business opportunities. A recession affects everyone so work together to get out of it.
6. Spend cash: In a recession when most companies stop spending, advertisers grow desperate for business and will bring their costs down. Taking advantage of this to market your products in uncertain times will give you the opportunity to stalk past your struggling competitors and create product confidence in your customers.
7. Haggle: Use this opportunity to haggle with your supplier for lower costs. They too will be affected by the recession and if the other companies they supply are pulling out, they will be desperate to hold onto what they can.
8. Be positive: You can follow all of the guidelines and more but if you are negative throughout, your business will fail. As a business owner, you have a responsibility to your company and your staff to remain positive. Being negative or allowing the fear to take you will definitely destroy your business. You need to keep positive, keep your mind clear and focused on the task at hand; survive.
Increasing the prices arbitrarily after a recession will have a negative effect on the customers so a company which responds to a recession with cutting costs across the board without a proper plan will have effectively boxed itself into a corner.
Yet, there are companies that have managed to take advantage of a recession and become far more profitable than they would have been able to when the economy was stable. This is certainly possible but your business must be iron clad in its survival methods first before you even think of building a profit.
A lot of your survivability has to do with your ability to financially steer your company during the recessional storm. The relationships you build during this time and the effort you take to keep your customers happy will certainly pay off when the economy stabilizes.
Instruct your staff to care more for your customers than themselves and you will see better returns in the near future.
Remember that as bad as a recession is, it will eventually always come to an end and things will bounce back. It may not be exactly the same way as before but there is a light at the end of a long tunnel so you need to position yourself in such a way for when things get better, your company emerges all the stronger.