Economic change happens, and when there is an economic downturn, it can be challenging for start-ups and small businesses, with customers spending less frequently opens in new window.
Global events, economic market instability, and other trying economic conditions can make running a successful small business challenging opens in new window.
Despite challenging market conditions, small businesses can build financial resilience opens in new window in preparation for future growth.
The best way to safeguard your business is forward planning opens in new window.
By looking at the worst-case scenario you can put in place contingencies should the economy take a turn for the worse.
This means your business can handle unexpected economic shocks, such as customers being unable to pay or suppliers going out of business.
How to build business resilience during a recession
1. Keep tabs on cash flow
Start-ups are less likely to have a cash buffer than larger businesses, leaving them more exposed if there is less cash coming into the business than leaving.
To allow for this, be extra diligent in monitoring cash flow opens in new window.
This can help you take prompt action if the situation demands, such as cutting back on expenses or chasing up late-paying customers.
Read our guide on how to manage and protect cash flow during difficult times opens in new window.
2. Manage debt
Keep your debt level opens in new window as low as possible.
High inflation in a recession opens in new window can push up interest rates on business loans, making it more expensive to service the same level of debt.
If you have extra funds available – or if your business is growing – consider using them to pay off high-interest debt.
3. Create an emergency cash fund
A cash cushion can be a useful safety net for start-ups.
Aim for an emergency fund that can see your business through six months of essential costs, including payroll, inventory, and utilities opens in new window.
To get started, look to secure earlier payments for money owed to your business and consider paying bills towards the end of the period when they become due.
Consider putting surplus cash into a business savings account.
A business loan opens in new window can be an option if your start-up needs capital to get off the ground – check if you’re eligible for a Start Up Loan opens in new window.
4. Explore additional revenue streams
Developing multiple revenue streams opens in new window can help start-ups survive in the face of changing market conditions.
Passive income can come from many sources including leasing unused storage or workspace, white-labelling your products opens in new window, or providing coaching and consulting services opens in new window.
If one of your revenue streams is adversely affected by a downturn in trade, additional avenues may help to keep the money coming in.
5. Focus on customer relationships
According to Harvard Business Review opens in new window, acquiring a new customer opens in new window is anywhere from five to 25 times more expensive than retaining an existing one. opens in new window
Target your existing customers for repeat purchasing and ensure they stay close to your brand opens in new window.
Loyal customers opens in new window cost less to attract, may be more likely to purchase, and can recommend your business to others.
6. Increase the value of transactions
Encourage customers to spend more with your business, identifying services and products can increase profits opens in new window through cross-selling and up-selling.
Cross-selling is where you encourage customers to buy related services and products, such as selling fries as a side order for a hamburger.
Upselling is where you encourage customers to buy more, such as choosing a larger-sized portion of a takeaway for an additional cost.
Read our guide on how to price your products and services opens in new window.
7. Optimise inventory
Excess inventory can be a financial burden for a start-up.
Large volumes of stock may require additional storage space, which adds to business overheads and could be left unsold if customer confidence and spending decrease.
Consider investing in an inventory management system, keeping tabs on stock levels, and ordering just in time to fulfil customer orders.
8. Downsize if necessary
You may need to cut costs opens in new window If your business is affected by a decrease in sales or faces difficult market conditions.
Consider reducing overheads, such as moving to a smaller office space opens in new window, and look to outsource non-core functions opens in new window, such as human resources management, accounting opens in new window, and payroll.
Read our guide on how to reduce costs and increase profits opens in new window.
9. Assess your business’s risk tolerance
It’s a good idea to check on your business’s risk tolerance level.
Consider the level of risk your employees and systems can handle, and create forecasts opens in new window for different scenarios, such as if sales fall or interest rates increase on business debt.
Understanding your business resilience and the level of risk you are willing to take on opens in new window can help inform decision-making, such as taking on debt to expand operations.
10. Devise an action plan
It can be a good idea to plan for different scenarios opens in new window and create action plans accordingly, so you are prepared should a crisis hit.
A well-thought-out plan can help minimise mistakes made under pressure or bad decisions made in the moment.
Involving employees in the planning process will help them to buy into the plan.
Recessions can be challenging for small businesses, but it’s important to remember that they can also present opportunities.
Safeguarding your business and keeping a positive attitude can help build resilience and prepare the ground for taking advantage of new, emerging opportunities.
Find out how to apply for a Start Up Loan opens in new window to help your business grow.
Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.
Our free Learn with Start Up Loans courses opens in new window include:
- Entrepreneurship – from ideas to reality
- First steps in innovation and entrepreneurship opens in new window
- Entrepreneurial behaviour opens in new window
Plus free courses on finance and accounting, project management, and leadership.
Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.
