The Dow is crashing and oil’s price is collapsing; emerging economies are no longer ‘emerging’ and small-caps, the best barometer of disposable income and risk tolerance, are in a full-blown bear market.
It’s here. The recession that market forecasters have been anticipating for a couple years now is knocking on the door.
While Main Street may be a couple months away from starting to feel the recession, make sure you’re not left unprepared – and consider this your warning.
So, as an entrepreneur, how do you prepare for a recession?
7 Ways to Prepare Your Business for the Coming Recession
1 Get excited: Sounds like a crazy thing to say, I know. But if there is one common narrative I’ve learned from the most successful entrepreneurs it’s that from every crisis there is exceptional opportunity.
You can’t fear a recession, otherwise you’ll miss the opportunities that stem from it. Most of your competitors will be unprepared for the coming recession and, as a consequence, when it arrives they’ll be shell shocked, scared and some may dissolve. Naturally, this will provide you with an opportunity to pick up some, if not all, of their customers, provided you too aren’t crapping your pants.
2 Review expenditures and cut some fixed costs: During a recession, most entrepreneurs (and people for that matter) will cut out the ‘extras’ and luxury expenditures. This is, of course, a smart move; however, it isn’t where you’ll save the real money and it won’t make your business more efficient.
Knowing that a recession is near, you need to take a hard look at the inefficiencies within your business, and see exactly which fixed costs can be cut down, or even eliminated.
To consider: Is your internet, cable and phone on the ideal plan for your business? Look for cheaper alternatives. You can even call your service provider and negotiate your package to a cheaper price. You may not have to give up anything.
Is your monthly round of golf for all management necessary for team building? There are other ways to build camaraderie that involve less time and money.
Is flying business class essential to your success? Of course not.
Are you providing free lunches for your staff? Yes, this is nice, but not necessary.
Can you conduct video conferences in lieu of traveling for face to face meetings in some instances?
Additionally, if you’re in an office, and your lease is almost up for renewal, call your landlord and begin renegotiations. See if there is a way you can cut rent down 5% to 10%. If not possible, look for new office space that is cheaper – just make sure you’re not asking your employees to commute much further than they already are.
Some of these cost cutting examples may seem trivial, but believe me, they’re not. By cutting back on these types of fixed costs, you potentially avoid having to make pay cuts. Nothing kills morale more than pay cuts and they can also result in losing top employees to your competitors. Your human capital is your most important asset. Avoid pay cuts at all costs.
3 Plan a new customer offering…now: No matter what type of business you own, a new staple product/offering during the recession is necessary.
If running a retailer, this offering will likely be something just to get people in the door and may even be a loss leader. If your company is a service provider, the offer needs to be so compelling, but also something which inevitably will need to be done by your customers at some point in time, that they expedite getting it done because your offer is ‘once in a lifetime’. Remember the ‘cash for clunkers’ government sponsored automobile program? Same concept.
During the 2008-09 recession, a high-end steakhouse here in town offered what it called the ‘Recession Special’. It came with an appetizer, filet mignon and desert for $35. Given that steakhouses are visited by most people only on special occasions, the restaurant made the right call by offering this so-called ‘Recession Special’, likely at break-even pricing, just to get people in the door during the recession. This allowed the steakhouse to remain fully staffed, and also provided the restaurant a chance to upsell its customers drinks while eating their once in a lifetime-priced steak meals. You need to create offerings like this to keep attracting new customers during a recession, which will keep your staff busy and morale up.
What will your Recession Special be?
4 Create new challenges and rewards for top performers: I can’t stress this enough. Keeping morale high among your employees during a recession should be priority number one. One way to do so is to create challenges for your staff based on top performance and customer service. Give out rewards/awards to the winner.
You have to make work fun, especially during the tough times. If you avoid pay cuts and continue to reward your employees for battling in the trenches with you during a recession, you’ll come out of it stronger than ever.
5 Establish a rainy day credit facility: If your business doesn’t already have a credit line (which I hope you’ll never have to use out of desperation), now is a good time to apply for one. Apply before lenders tighten up once again. If we learned anything from the 2008-09 recession, it was that after the crash it took banks years to start lending to businesses again.
Money is still very, very cheap. Interest rates are at hundred-year lows. Take advantage.
Not only will this credit line give you somewhat of a safety net if shit hits the fan, but it will allow your business to start establishing credit. Additionally, if you plan on expanding when the economy clears this coming recession, the credit line can expedite that process. Also, if any of your competitors go out of business during the recession, you can use your credit line to pick up some of their assets for pennies on the dollar. Remember, leverage, if used responsibly, is an important, and in many instances, vital tool for entrepreneurs.
6 Getting ready to grind: You have to mentally prepare yourself that as an entrepreneur, you’re going to have to work twice as hard for half the pay during the heart of the recession. Remember to love the journey and accept the volatility.
7 Cut all negative people out of your life: This is a good idea whether the economy is in a recession or not. With that said, during a recession it is even more important. You will be challenged, and negativity can have a crippling impact when times are already tough. Surround yourself with people who take the long view and see the recession for what it is: an opportunity.
Great businesses and entrepreneurs stand the test of time because they are prepared for the worst-case scenario. A recession is coming, and it’s important that entrepreneurs prepare in advance and are ready to make the most of this crisis.
The most successful 12-month period I had in business was September 2009 through September 2010. This happened because in mid-2008 I saw the economy teetering and began preparing for the worst-case, while simultaneously developing a strategy to bring in more clients. While many of my competitors had their heads in the sand, I was out there pounding the pavement and closing deals with my ‘Recession Special’ offer.
Never let a crisis pass you by…