Business Strategy During a Recession

Many successful businesses start planning for a recession early, as soon as the indicators suggest a recession may unfold. So, is it possible to make your business “recession-proof”? And what strategies are most effective for surviving — or thriving through — a recession?

Want a comprehensive guide? Dive Deeper in our Recession Readiness Hub.

Can businesses be successful during a recession?

Yes, especially if that business is an essential service, like healthcare, grocery, auto repair or real estate management. Examples of businesses that began during a recession and became successful include:  . 

• Disney, founded at the beginning of the Great Depression in the late 1920s. 

• Hewlett and Packard began in the recession of the late 1930s. 

• Netflix, Citigroup, Groupon, and Lego all thrived during the 2008 global financial crisis.

Learn more: How to Grow Your Business During a Recession

Making your business “recession-proof”

Depending on your industry and the nature of your target market, you may not escape a financial impact during the recession. But there is something you can do, and that is to prepare to weather the storm so that when the market opportunity improves, your business is ready. 

When you see indicators that the market might slow, take steps to ensure a strong balance sheet, reduce exposure to risk, lower ongoing fixed costs and diversify income streams. A company with low debt, reliable cash flow and a strong balance sheet is in a better position to pivot and adjust as the economic landscape changes.

8 strategies for business survival during a recession

While it may not be possible to eliminate all impacts of a recession, all businesses can adopt strategies that increase the likelihood of surviving a recession.

1. Cut or reduce unnecessary costs

Reducing costs is critical as a recession approaches, however, it’s important to cut the right costs. Strategically auditing business expenses can enable you to eliminate unused software, unnecessary subscriptions or inefficient processes. The goal is to create a lean and effective business operation, not a cheap one. It is important to continue to invest in revenue generating activities

Some areas to evaluate might include: 

• Negotiating down your monthly rent and any other supplier costs

• Find cheaper vendors for utilities and cut any non-essential technology costs

• Consider whether poorly performing employees are worth retaining

2. Strengthen cash flow

Steady and reliable cash flow will ensure that the business survives. Monitor funds, tighten account management with stricter accounts receivable payment terms and follow up late invoices. If possible, negotiate extended payment terms with suppliers to keep more cash on hand. 

If there are grants or other funding available that aligns with the business goals and strategy, put in the time to apply. 

3. Nurture your existing customer base

During a recession, customer loyalty is key. Prioritize customer relationships by providing exceptional service, personalizing experiences and communicating consistently. 

Find out what existing clients or customers want or need from you. When your existing customer base is nurtured throughout a difficult time, they are more likely to recommend you to their networks. You might even consider cutting the bottom 20% of your worst-performing customer base to ensure you’re devoting precious resources to those with higher lifetime value.

4.Value-based selling and smart pricing

Competing on price alone often means compromising quality in a race to the bottom. Instead, focus on value-based selling that highlights the quality, results or unique benefits your business offers. When you do adjust pricing, do so strategically by combining services, offering tiered options or adding premium features. It’s imperative to communicate velu to customers to justify pricing and maintain profitability. 

5. Support stakeholders with clear communication

Whether it’s your employees, suppliers or investors, clear communication is the best retention strategy. Make sure that your stakeholders have the information they need about the business strategy you are taking to get through a recession. Clear communication will instill confidence that they can rely on the business and will be paid for services or supplies. 

Communication that is transparent can help to encourage innovation and collaboration, which may deliver solutions and efficiencies that will reinforce the health of the business during a difficult economic period.  

6. Diversify revenue streams

As you work to find operational efficiency, take the time to identify where you can apply the resources you free up to create diverse revenue streams. Creating passive income or offering supporting or new products or services that fall within the business core expertise can help to increase market share. 

7. Leverage low-cost marketing strategies

It’s essential to continue marketing throughout a recession to ensure your business has a consistent pipeline for its products or services. However, this might be the right time to focus on marketing solutions that deliver value for money. Depending on your business type, this might mean doubling down on customer retention, creating marketing automations to support your sales team’s efficiency, seeking strategic partnerships and using evergreen content marketing that has a generous lifetime value. 

8. Prepare for funding difficulties

It may be difficult to raise capital during a recession due to stricter lending criteria and greater perceived risk. You may need to revise an aggressive growth strategy to allow for a period of boot-strapping, reinvesting any profits into business growth. Be sure to maintain robust financial records and performance metrics to ensure that the business is in the best possible position if you do need to raise capital through either debt or equity.

How do you succeed as an entrepreneur in tough economic times?

While there is no one-size-fits-all economic survival strategy for entrepreneurs, one thing that is certain is that being well-informed of the forces that will shape your business is key. 

Spend strategically

While reducing costs may have a role to play, increasing productivity is also essential. Adjust spending strategically to pursue R&D and marketing goals at just the right moment to continue momentum. 

Stay agile

Finally, remain agile. If one area of the business pauses in growth, use the time to focus on another area. Taking creative yet considered risks can promote long-term gains in performance during and after a recession. 

Focus on relationships

Relationships are more important than ever during a difficult time. This may be an opportunity to build rapport, support others and even to discover new opportunities. Continue to network and to build relationships, listening to the concerns of others and being open to a pivot if you spot a gap in the market. 

Stay organized to secure capital

While it may be more challenging to raise funds during a recession, once you establish a proven product or business model, you want to ensure you are ready if an opportunity knocks. Make sure all of your capital raise documents, financial info, intellectual property and due diligence is in order and ready for the eyes of investors. 

Make it easy on yourself. Download the capital raise checklist now.

How can big businesses survive recessions?

Big businesses survive recessions by determining their core competencies and divesting non-essential business units. Money raised from divestment can be reinvested into the highest growth areas, as indicated in the 2021 EY Global Corporate Divestment Study.

Know your numbers to give your business the best chance of surviving (and thriving) during a recession

Knowledge is power when it comes to making smart, informed decisions during a difficult time. Be prepared to pivot your business to survive a recession and to benefit from any opportunities that arise in a disrupted marketplace. 

The Ansarada platform provides clarity, certainty and speed for decision-making around forecasting, capital raising, debt, and operational efficiency.