Business recession: how to plan during economic uncertainty

Advanced business recession planning could help put your business in good shape to tackle every eventuality. Read on to learn how to identify your business risks.

Jeff Salway Last updated on 10 March 2021.
Business recession: how to plan during economic uncertainty

Data from the Office for National Statistics (ONS) shows that the UK economy shrank by 9.9% in 2020, with the coronavirus pandemic causing the largest fall in output for more than 300 years. The economy is unlikely to recover to its pre-virus level until the middle of 2022, according to the Office for Budget Responsibility (OBR), signalling tough times ahead for SMEs.

A study commissioned by NerdWallet found that three in 10 firms were worried about their business collapsing, with some pointing to a lack of government support. With Brexit having created further disruption and difficulties, the task facing business owners now is to ensure they have plans in place to navigate whatever the coming weeks and months have in store.

Here’s some ideas to help you with your business recession or economic uncertainty planning response.

How to identify the business risks

The exact nature of the threat posed by any economic downturn will vary between different businesses, sectors and operating models. So while a recession is cause for concern, it’s important to understand how it will impact your own business.

For instance, the businesses hit hardest by a Brexit-driven downturn may be those that fared relatively well when the pandemic hit, and vice versa. Others may even thrive during the current climate.

» MORE Impact of Brexit on businesses

Key questions to think about when identifying recession business risks include:

  • How will your customers be affected by the downturn?
  • Will your supply chains be affected?
  • What will it mean for competition and price elasticity in your market?

Manage your cash flow

The first sign of a possible crisis will often be found in a business’s cash flow. If money is going out more quickly than it’s coming in, action will likely be needed. So it’s important to know exactly where you stand in cash flow terms and what you can do if there’s a risk of it drying up. Lose track and you could soon be struggling to meet obligations such as paying staff and suppliers.

Explore how you might address any cash flow issues, whether it’s cutting costs, identifying inefficiencies, negotiating better deals with suppliers, finding out what support is available or arranging new sources of finance – or all of the above.

You ideally want enough cash to cover your outgoings for at least six months. That will not always be realistic, of course, especially in sectors with tight margins. Whatever sector you’re in, it’s worth thinking about what might happen in different scenarios, such as a government change, pandemics or the loss of key personnel.

» MORE Making a cash flow forecast

Decide whether to streamline or diversify

Putting all your eggs in one basket is rarely a good idea, in personal finances or in business.

For some businesses, the safe option in lean times is to focus their resources on the products or services they are best at and scale back the activities on the periphery of their specialism.

But for others, however, the key to survival will lie in their ability to diversify across multiple revenue streams. That might involve developing new products or services or maybe repurposing their existing offering for different markets, so that if one area of the market is hit particularly hard, there are other sources of income to fall back on.

Take advantage of your flexibility

SMEs are often sufficiently agile to react quickly to challenges and innovate their way forward. In a recession, for instance, that might involve working out how your customer base is likely to be affected and either altering what you already provide or offering new products or services.

Alternatively, it may be about going back to basics and understanding what kind of products and services are least vulnerable to a downturn. That’s why businesses specialising in ‘non-cyclical’ products, such as non-durable household goods (i.e. toilet roll, soap and toothpaste), tend to do well at all stages of the economic cycle.

Or perhaps it will be about identifying new ways to reach customers, as many businesses did when the pandemic accelerated the shift to digital channels.

The benefit of running an SME is that you will likely have greater agility than some of your competitors. The ability to adapt and change can make all the difference during economic uncertainty.

Don’t go quiet

If businesses are struggling, customers are likely to be too. Depending on the nature of your business, this may be a time to add value by helping customers through the crisis, communicating with them regularly and maintaining a profile on traditional and/or social media.

Marketing and communication can sometimes be the first target for cost-cutting. But in some sectors, the last thing customers want in challenging periods is for you to go quiet. If competitors are cutting back on comms, that just creates more opportunities for you to be heard.

» MORE FREE online ways to market your business

How can business continuity planning help me plan?

Business continuity planning can help you have a plan B for the worst-case scenarios, so you have a plan in place for whatever is thrown at your business. This may include things like government and environmental issues that could impact your business in the future.

» MORE Learn how to create a business continuity plan

Image source: Getty Images

About the author:

Jeff is a freelance journalist who writes across finance & business. He was the personal finance editor at The Scotsman & Scotland on Sunday & a member of the Financial Services Consumer Panel. Read more

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