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6 things you can do to help make sure your small business survives a recession

October 8, 2011

With the UK in a period of prolonged recession or very low growth, and with the credit crunch affecting the economy, conditions are very difficult for a large number of small businesses.

The realities of a recession means that consumer spending is weaker and therefore any service provider, retail outlet or manufacturer that is reliant on this ‘consumer spend’ will find it hard going.

Recessions are never nice things to go through. These are times that we see job losses occur and the impact this has on families and, in-turn, on communities and other businesses can be devastating. But as a small business you can survive a recession by following and acting on a few basic principles;

Lower your outgoings

You need to take a hard look at your outgoings and decide what is and is not essential. Just imagine the steps you would take if your personal income dropped what would you do? I would imagine you would take a hard look at what you spend your money on and cut back in a number of areas. This is exactly the same approach that should be taken in your business.

For example, you may pay for private medical insurance for certain employees; do you need to be paying for such insurance at this time? If it was a choice between private insurance or losing jobs, what do you think your staff would choose?

You may also have to take a hard look at your staffing levels and if the orders are not coming in then you will realistically need to look at options of ‘short time’ or redundancy. This however is usually the last course of action.

Lower your stock holding

This is also good practice even when not in a recession. Stock costs money and although an asset on your businesses books it is not making you money and providing that vital cash flow, unless it is fast moving and selling of course.

Do you need to hold so much stock? What is the value of the stock, can it be sold for a smaller margin in bulk to reduce your holding, and inject you with cash?

Why not look at developing a JIT (Just-In-Time) model with your suppliers or within your own order or manufacturing process. What about fulfilment models? Remember, stock is dead money until it is sold!

Do not stop marketing activities

As the consumer spending reduces you need to continue to grab a share of this decreasing pie. You will find that your existing customer base will be impacted as companies fold and people tighten their belts and investing in marketing activities at times like this is more important than ever.

Use marketing to enhance your business and personal profile to differentiate you from the others. Emphasise your qualities as a business, playing on your strengths, your longevity maybe.

Also make sure that you use your own network of contacts at this time, put your feelers out for more custom by making it known to everyone that you are on the look out. If you do not inform people then no one will know, so keep informing them!

Hold your nerve

It will not only be your business that is going through this, everyone will be. What you must not do is panic; taking knee jerk decisions that will affect your business proposition when the country eventually pulls out of a recessionary period. Recessions bring difficult times, but thankfully, they do not last forever.

Always consider as many options as you can, seek help and support from others. This does not always have to be paid for advice, use your network of contacts, your friends, family and business associates. Other businesses will be experiencing the same travails, so fellow small business owners can offer helpful insight and empathy.

Watch your cash flow

You might be making a profit, but it is cash flow that matters during such times. You don’t get points for having the strongest balance sheet that ever went out of business. In recessions, businesses tend to start paying supplier invoices later to protect their own cash position.

There are many things you can do depending on the business and customer base that you have; possibly consider taking payment with order, factoring your invoices will cost you margin but this might be better than not getting the money you need to survive.

You also need to make sure you keep on top of bad debt situations and try to pre-empt any potential problems by reducing any credit that you offer.

People

As mentioned you may have some tough decisions to take about the people who work for you. However, make sure that your workforce is kept informed of any situation you find yourself in and how this might affect them.

You will need their ‘buy in’ more than ever at times like this, and if they understand the circumstances then they should not be surprised about any decisions you take. Yes, you may stand the risk of some of them leaving, but many employees won’t want to be looking for another job while the job market is subdued. And if you do lose an employee or two because of this, it might mean there are no enforced job losses.