Recessions: Part II

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In a previous HBS post we offered up a definition of what constitutes a recession and discussed the possibility that we could be headed for one.  While we are not here to make economic predictions, we would like to offer small-business owners five strategies to help cope with the next recession whenever it does arrive.

Focus on Costs

Your bottom line is, of course, driven by your revenues as well as your costs.  And while it can be tough to increase your revenues even in the best of times, you do have control over some of your costs, specifically your variable costs. Just as you may be struggling with your business, your suppliers are not immune to the effects of recession either.  Because they don’t want to lose you as a customer, now can be a good time to negotiate with suppliers for lower prices.

If your business is operating well below capacity you may have more manpower than you need, and it may be time to think about cutting back some of your employees’ hours.  While cutting hours or laying off employees can be very difficult, it is critical to honestly assess your business’s needs in order to survive difficult times.

Preserve Your Cash

The old adage that cash is king is never truer than during a recession.  Because banks become reluctant to lend as the economy sours, previously available financing can dry up very quickly, so managing your cash efficiently can make the difference between survival and failure.  Make sure to stay on top of your accounts payable, and if you are able to take advantage of credit (without getting over-leveraged) in order to preserve much-needed cash, then by all means do so.

Embrace the Barter System

Contrary to what you might think, the barter system did not disappear with the advent of the market economy, it is alive and well today. Say you really need to update your website in order to make a marketing push (and marketing is something you should try not to skimp on during a recession), but you don’t have it in your budget to pay a web designer.  Well, chances are pretty good that there are quite a few underemployed designers around, and if you are persistent you may be able to find a good one who is willing to exchange some of his time for whatever goods or services your business has to offer.

Ramp Up Your Customer Service

While ramping up anything in a recession may seem counterintuitive, customer service is one area in which you can actually have an advantage over your bigger competitors, particularly during turbulent economic times.  When large companies struggle with massive layoffs and restructurings, their customer service—which often isn’t a strong point to begin with—can suffer greatly.  As the owner of a small business, you have much greater control over your company’s interactions with customers than the CEO of a giant multinational does.  And during a recession you may have more idle time to assess and improve those relationships; taking the time to do so will not only help you ride out the storm but should build loyal customers who remain with you during the good times too.

Focus on What You Do Best

When times are tough and business is slow it is important to ask yourself the following, “What is it that my business does best?”  Like a lot of entrepreneurs you may have branched out from your initial focus and become involved with a number of different products or business lines.  Now is the time to take a hard look at the numbers for each area of your business to see what is working and what isn’t.  By refocusing your resources on what you do best (i.e. what makes you the most money) you’ll wind up with a more efficient and profitable company.

While there are no surefire tricks to surviving a recession, following the preceding advice should increase your odds of making it through until things get better; and in the long run, they always do.

 

More By Gregg Schoenberg
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