Q: What steps can I take to avoid getting caught up in future recessions?
Mar 12 2007
Answered by: Clive Lewis Ask a question
A recession can be a self-fulfilling prophecy. If thousands of small businesses and just a few very large ones start planning to cope with a recession, it is bound to happen. All those decisions to tighten the belt and cut costs will reduce demand (and sales) for other businesses, which in turn will have to make further cuts, and so on...thus a recession is started.
Your business strategy, if you fear that a recession looms, is to make sure that you and your business are there at the end, well poised to take advantage of the next upturn. The strategy most likely to lead to that is to cut your overheads. Unfortunately, this means taking a look at your head-count. Can you manage with fewer employees? Are they all employed on must-do jobs rather than nice-to-do work? If there is a downturn, this may mean less demand for your products, so ask yourself, which duties within your workforce will be lightened? Don’t forget that this can also be an opportunity to ease out employees who are perhaps less than satisfactory.
The wage bill is not the only overhead. Postage, stationery, marketing, rent, gas and electricity are just a few of the common items, which make up the overheads of most businesses. Review all these items when you first suspect a recession is on the way. And don’t despise any saving not matter how small. Save £1 a day and you’ve saved £350 in the year.
You should also review all your direct costs, principally your suppliers and examine whether your contracts can be renegotiated in your favour. Be firm - if you are worried then all your suppliers will be too, and anxious not to lose your business, thus providing you with an opportunity to tear up your contracts.
On the more positive side, look at what you are selling. Can it be tweaked to appeal more to customers facing a recession? Is there some other product, more suitable for the downturn in an economic cycle that can be easily introduced? Don’t forget that even if you reduce your costs, you still need to generate enough revenue to cover that lower level.
Your bank manager, suppliers and customers will stay confident in you and your business if you are demonstrating that you are planning and prepared for harder times ahead.
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