May 28, 2023

Brad Marolf

Business & Finance Wonders

5 Signs Of Recession And 4 Ways To Strengthen Your Business Against One

Teh Chen is Chief Revenue Officer at Hourly, a workers’ comp/payroll insurtech startup for small and medium businesses with hourly workers.

The drumbeat of recession is loud, and it’s getting louder. Indeed, as this recent blog post from Fiat Wealth Management breaks down, we are currently seeing evidence at work of five persuasive indicators that the U.S. has a recession on the horizon. These signs include:

1. Rising interest rates.

In 1980, another time in which we saw inflation running amok, the Fed similarly raised interest rates. The result? A recession constituting the most significant economic downturn since World War II.

2. Declining home values.

The white-hot real estate market of last summer is but a faded ember. Business Insider says home prices have fallen at the fastest rate in 15 years.

3. Increasing unemployment rates.

Unemployment has risen half a point in the past year, which the Fiat blog notes as a strong indicator that “the country is headed into a recession.”

4. Stock market volatility.

Want to be worried? Get this: Investor Place reports 2022 has been “the fourth-worst year in the stock market’s history…with the market down 23.3% for the year.”

5. Declining consumer confidence.

Consumer confidence is down around 30% this year. The question is no longer whether a recession is coming—it seems inevitable.

Rather, the question is, how are you and your business going to respond to it? Let me suggest that it would behoove the savvy entrepreneur to prepare now for a looming downturn.

What might that look like?

As you well know, in a recession, people spend less. This is especially true in America, where, according to the Bureau of Economic Analysis, “consumer spending is the single most important driving force of the U.S. economy.”

Given that, it is incumbent upon the small business to prepare for what seems an inevitability. Here then, are four smart ways to recession-proof your business.

1. Cut your overhead.

Cutting back is smart, especially in lean times. The good news is that there are all sorts of ways to do just that—but first, a caveat:

Cut back using a scalpel, not a cleaver.

What I mean by that is that you want to be strategic and precise when cutting back…as opposed to, say, issuing a memo that declares: “All departments need to reduce spending by 15%.”

Cutting back on, for example, marketing is precisely the wrong thing to do. I would advise to keep—nay—expand those line items that are most likely to help you withstand the storm.

Rather, look to reduce spending on those areas where the pain will be felt less, and the savings will be felt more, such as:

• Reducing your rent.

Either move to new digs or threaten to. At a time when offices are sitting empty, a paying renter is a valuable commodity. Use that. Either your present landlord will (reluctantly) reduce your rent, or you find a new one who can give you a smoking deal.

• Reviewing vendor contracts.

The same rule applies. Paying customers are at a premium now and will only become moreso in a recession. Use that to your advantage to either re-negotiate contracts or find less expensive alternatives.

• Conducting a company-wide expense audit.

Ask staff for suggestions of places where they see waste; you can bet they know of some you do not. Give rewards for the best ideas.

Cutting expenses now will pay big dividends later when business slows.

2. Market, and then market some more.

Do you remember that old, classic episode of Seinfeld where George learns that if he “does the opposite” of his natural instincts, everything works out better?

So should you, here.

Do the opposite.

Here’s what I mean: In recessionary times, the instinct of a small business owner or manager is often to pull back, truncate. That makes sense. After all, with customers spending less, revenue decreases, and when revenue decreases, budgets decline. As a result, prudence seems to be the, well, prudent way to go.

Only it’s not—at least not with regard to your marketing.

What does none other than Warren Buffet say? “Buy when everyone else is selling and sell when everyone else is buying.”

He’s telling you to do the opposite.

Why? Because opportunities abound in recessionary times. With your competition truncating, you can scoop up their customers with some clever shoestring marketing. Remember, marketing today doesn’t need to be expensive. Pay-per-click, social media marketing and digital marketing are all fairly inexpensive.

3. Look to strategic partnerships.

Another growth strategy that can be especially effective right now is to look for new strategic partnerships. There is a multitude of advantages to teaming up with a compatible business in a joint venture, including that:

• Expenses can be halved.

• You can gain greater exposure to new markets and potential customers.

• New contacts are made.

By searching for, finding and then executing a new plan with a new partner, you are able to get in front of a whole new audience—with that other company footing half the cost. Now that truly is a recessionary win-win.

4. Reward great customers—and fire bad ones.

One last way to ensure success is to focus on your best, most profitable customers. And at the same time, look to get rid of the deadwood.

Do an 80-20 analysis. Who are your top 20% of customers, the ones who generate the lion’s share of your income? Whoever they are, take care of them. Shower them with love, deals and thank yous. Conversely, consider cutting ties with the difficult ones.

The lifetime value of a great customer is not insignificant. You know that. They do too. By treating them like the key person they are, you will go a long way to ensuring your long-term success and their long-term loyalty.

If you take care of them, they will take care of you.

What’s the bottom line?

Sure, recessions can be scary. My advice is to turn that emotion inside out and tackle it head-on.

It’s not scary—it’s exciting!

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