Economic instability can tank any business, but unprepared ones are at risk above all. Before an economic crash, every company needs to put measures in place to keep cash flowing in.
But before you start axing programs, be warned: Many traditional recession-proofing strategies can send the wrong message to your team. Nobody wants to work for a company that looks like it's getting ready to fail. What's the secret to ensuring your company can weather tough times—without bringing those tough times on yourself? Consider taking the following steps:
1. Focus on what works.
When the economy slows down, it's not always easy to know how different industries will fare. Diversification is often touted as a safeguard against financial downturns, but side operations tend to get hit the hardest. Wide-ranging business operations are only protective when each piece is managed with the proper care.
Instead of branching out for its own sake, invest in what you do best. When a recession hits, you want to know that the central part of your revenue is working as well as it possibly can. Maximizing the performance of your core business protects you against potential lulls without setting off alarms across your office.
2. Set aside emergency funds.
You've probably been told to set aside three to six months of living expenses before investing your personal money elsewhere. Business works the same way: An emergency fund helps you weather uncertainty without having to cut your operations to the bone.
When business is good, set aside a small percentage of profits each month. Store them in a liquid, low-risk place like a savings account. Recessions often hit quickly and unexpectedly. Savings accounts may not earn the returns of stocks or CDs, but they're accessible at a moment's notice. Having a well-stocked one can help keep you from panicking about cash during a downturn.
3. Stay adaptable.
Although diversification isn't as foolproof of a recession levee as some might think, there is value in creating a business model that can change with the times. Even if your core line of business stays the same, updating it with new technologies and appealing to new markets gives you a dynamic edge.
Even if business is already good, reinvest in R&D and pursue partnerships. Innovation doesn't happen overnight. Recessions change the business landscape in unexpected ways: Give yourself as many paths forward as possible.
4. Don't neglect marketing.
Marketing tends to be the target of choice when economic conditions go south. But effective marketing is just as important in times of contraction as in periods of expansion. Consumers clamp down on their spending during recessions, so it's important to show that your company still warrants space in their budget.
Every marketing dollar you spend now plants seeds that will continue to grow. Trying to hold your footing during difficult times is easier when you're firmly planted. And if you do have to drop your marketing budget, you'll have more room to make cuts later.
5. Lower overhead the smart way.
Operating expenses can cut deep during a recession. Heat, water, lighting and rent don't get cheaper during downtimes, so getting the most out of your office space before things slow down is critical.
An emergency fund helps you weather uncertainty without having to cut your operations to the bone.
More and more companies are offering remote work options to their employees. Remote work has been shown to help increase employee satisfaction and creativity, all while reducing employers' office space needs. Adopting an office-wide remote work policy doesn't look like a cost-cutting panic move—it looks like an embrace of modern trends.
You want to be prepared for the worst, but you can't afford to send signals of doom to your team. Fortunately, taking steps to prepare for darker times won't just keep your lights on tomorrow. Done right, it can help your business's flame burn brighter today.
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