Economic downturns are difficult in many ways, but for savvy business owners, there’s often a silver lining. Typically, they force businesses to run with fewer resources—trying to do more with less makes a company more nimble, agile, and resourceful. Those are good long-term traits for any business.
The Great Depression and the Great Recession are both examples of major economic downturns that left many businesses closed for good. But the economy eventually returned to normal, and many businesses that survived were stronger than ever. Amid the COVID-19 crisis, it’s important to look at what businesses did to survive during challenging economic times so they could thrive in the recovery and beyond.
Businesses that succeeded
While many Canadian businesses shuttered their doors during the Great Recession in 2007 and 2008, innovative and prepared businesses were able to emerge unscathed. Some small businesses even started during the last major economic downturn and plan to keep operating through the coronavirus crisis and beyond.
“During the Great Recession, I reduced my expenses where possible,” said Tom Drake, the Calgary-based founder of MapleMoney.com. “But I also looked to grow as a new business owner that saw an opportunity to hire work from home help.”
A focus on running his business entirely online was a relatively new concept during the last economic downturn, but it’s nearly vital in the current climate. Restrictions on movement make companies with a robust online presence more likely to persevere. But the same lessons apply to traditional brick-and-mortar businesses as well.
“Always look for the path to a positive outcome,” he shared. “Events like this can open your eyes on ways to streamline expenses, create engaged employees, and have a more profitable business.”
What we can learn
While a shift to running as much of your sales process online is obvious, some other strategies to improve your business’s economic resilience has to take place in the physical world. A look at your company’s finances can tell you a story of where your money comes from, where it goes, and where you may be able to save.
Large corporations employ teams of financial planning and analysis (FP&A) workers who spend their days looking for patterns and opportunities in a business’s operating and financial data. At small to mid-sized businesses, that job falls on owners, managers, and sometimes a small finance and accounting team. Here are some areas they should pay close attention to:
Recurring overhead expenses
Start by looking at your business’s recurring bills. While you probably won’t move to a cheaper location in a hurry, you’ll probably find at least a few monthly or quarterly purchases your business can do without. “Review all your regular expenses and see where you can cut back,” said Drake. “For example, maybe you have software or trade magazine subscriptions that you don't really need.”
While you may normally stock gourmet snacks in the breakroom, keep a backup of office supplies, and make other business purchases that are not true necessities, this is a good time to trim back or eliminate extra purchases entirely if you can. There’s no need to keep a backup of nonessential supplies.
Professional business services
Outsourced legal, financial, human resources, and other services can be very expensive. Look at your agreements and cut back if you see an opportunity to save. However, in many cases, an outsourced financial service can generate more cash for your business than they cost. In this area, cut expenses with care.
While no business wants to let workers go, sometimes layoffs are required to survive a downturn. Cut back on payroll by reducing hours or staffing levels if you need to for business sustainability.
Tracey Bissett, Chief Financial Fitness Trainer at Toronto-based Bissett Financial Fitness, was a Commercial Credit Risk Management at leading Bank during the Great Recession. She uses lessons she learned in banking to sustain her financial services business today.
She found the “importance of managing cash flow, having cash reserves on hand, and not being overextended with debt” as key for businesses looking to outlast a financial downturn.
Businesses can emerge more resilient
Even during challenging economic times, your business can focus on what is needed most for long-term success. In the short-term, Canadians have access to many resources and strategies to improve financially.
For her own finances, Bissett reviewed her cash flow, reduced expenses where possible, and applied for government programs where she qualified. Like any forward-looking business, she also “reached out to contacts to see where [she] can assist.” Just as you’re dealing with new challenges, so are your customers and clients. You may be the source of a new and creative solution to whatever they’re facing today.
One of the most important steps she took, however, was to take “the time to slow down and assess the situation in a calm way.” Taking a long-term focus on your business can help set your business up to emerge from this economic downturn with a bright future ahead.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.