Before the world even knew about coronavirus, financial experts predicted the next economic downturn would be coming in 2020. Now, several months into a global pandemic, those experts say the “COVID-19 Recession” is officially here, and it’s expected to be the worst one since World War II.
Most businesses felt the immediate financial impact when states issued stay-at-home orders and shut down many non-essential businesses. Despite nationwide phased reopenings, many entrepreneurs are preparing for – and worried about – the long-term effects of lost revenue and foot traffic due to public health concerns and mass unemployment.
While the post-COVID recession is poised to hit businesses hard, there are ways to make it through periods of widespread economic hardship. Below, experienced entrepreneurs share their best advice for creating a recession-proof business plan and adapting your business model to the current climate.
The pandemic has given small businesses a crash course in adaptability. Businesses that weren’t operating online or remotely suddenly found themselves making huge changes to their business model on the fly. This willingness to pivot quickly and be flexible with your previous plans is the key to surviving the current recession.
“You can’t be married to any specific strategy, product or service,” said Abhi Lokesh, CEO and co-founder of Fracture. “You’ve got to be willing to try everything you can, see what works and pivot accordingly.”
Lokesh, who launched Fracture at the height of the Great Recession in 2009, acknowledges that change can be uncomfortable and difficult, but entrepreneurs can’t let pride, stubbornness or tradition get in the way of survival.
“It’s a matter of being incredibly detail-oriented and leaving no stone unturned in the pursuit of being as financially stable as possible,” he told CO —.
Listen to your customers’ current needs
Understanding and serving your customers’ needs is important at any time, but it’s especially important to empathize with their current struggles and changing purchasing behaviors right now.
Eli Diament, founder and director of Azurite Consulting, emphasized the importance of using primary research to better understand these changes. By collecting insights from consumers and suppliers in the form of focus groups, surveys and one-on-one interviews, your business will be better able to adapt to rapidly-changing needs and behaviors.
“If done effectively, primary research will allow you to tap into the decision makers and users you want and need to hear from,” Diament added. “A well-designed and precisely targeted survey can collect these insights, far better than any panel, ‘gut feel’ or word-of-mouth.”
Master the art of cash flow management
Keeping a close eye on expenses and cash flow can help you plan for your financial future and avoid overspending in certain areas of your business.
“Explore innovative way to make sales and slash cash spending,” said Lisa Vitale, business matchmaker at BarterPays!. “This is going to be a long, financially-lean road. Seek out alternate revenue streams to continue building your client base and allowing you to preserve your financial stability, even when existing customer sales are down.”
William Vanderveer, CEO of Redefine Healthcare, always recommends keeping six months’ worth of expenses in savings in case you don’t see the sales you’d hoped for. However, this isn’t always possible, especially for businesses that depleted their savings trying to stay afloat through COVID-19.
“For … business owners [who are] unable to preserve this amount of capital, I would recommend obtaining lines of credit representing similar cash requirements,” said Vanderveer.
To save even more money, David Foley, CEO of Unify Cosmos, advised business owners to shift more processes into the digital realm.
“Investments should be made to make the most out of the limited capital,” Foley said. “This is the time where businesses need to look towards an online platform to better serve their clients with the use of VR tours, video calls and complete reports that can be easily sent online.”
Negotiate new terms with your vendors
Vendor expenses can add up quickly, and during a financial crisis, discussing concessions or negotiating new terms with vendors and suppliers can be extremely helpful to all parties involved.
“Many would like to retain your business after things calm down and will be willing to work with you,” said Vanderveer.
Lokesh recommended reviewing every vendor agreement and seeking flexible monthly contracts in place of long-term commitments.
“Negotiate payment terms to extend cash flow and runway,” said Lokesh. “Redefine what’s a ‘nice to have’ versus a ‘need to have’ for the business.”
Tyler Read, CEO of PTPioneer, said the best way to recession-proof your business plan is to diversify every element of your business, especially your income streams and the markets you serve.
“If you provide just one service in one industry or have all of your money resting on the success of one product, there’s every likelihood that your business will fail when a recession hits and people stop spending money on that particular service or product,” Read said. “Put passive income streams in place and expand your offerings to serve a greater diversity of industries or people.”
Read also recommended diversifying your staff to bring diverse perspectives to the table.
“The more diversity you have in your company, the more creative and innovative ideas you’ll have access to when a crisis hits,” he added.
Keep investing in your business
Surviving the current economic downturn will be difficult for any business owner, but keep looking for opportunities, even when things feel bleak, said Vitale.
“Don’t stop marketing and advertising,” she said. “Businesses that continue to invest in themselves and advertise during recessions come back stronger and bounce back faster than those that [don’t].”
CO — aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.