We've all heard the warnings about the big R.
With much of the world's economies in or bordering on a recession, New Zealand is no exception.
It could be a good time to look at how you can help recession-proof your business to ensure that you have a better chance of surviving the rollercoaster.
But what is a recession, and how can you help protect your business?
What is a recession, and what does it mean for you?
The formal definition of a recession is: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
In simple terms, it's a significant and widespread downturn in the economy. A recession is usually declared when negative GDP coincides with increased unemployment and decreasing retail sales.
Five ways to help protect your business
Recessions can sound daunting and while your business could be impacted, there are ways you can help your business:
- Understanding your cash flow
- Extending revenue streams
- Consider pivoting
- Improve customer relationships
- Reducing debt
We'll delve into each of these tactics and what they could mean for you.
“The country has experienced four recessions since 1988 and all have been relatively shallow”
1. Do you know cash flow numbers?
Make sure you know your numbers and where the most money is coming from so that you can manoeuvre your cash flow depending on the economic climate. Consider a rolling cash flow forecast to guide you and serve as an early warning tool that alerts you to variances.
2. Can you find other revenue streams?
A variety of revenue streams can reduce the impact of a recession. They may give you a wider range of price avenues to maintain your financial position, despite economic pressures. You could extend your marketing and online presence in products or services you have not highlighted before.
3. Can you pivot?
Pivoting means adjusting your business to meet what customers are looking for. It may be a planned exercise but generally is a result of making the call when the market declines.
Fortunately, smaller businesses may be flexible and can quickly move in a new direction, unlike larger companies. This can be a way to swerve away from a decline of a specific market. It can also mean being in close contact with your customers.
4. Love your customers
It goes without saying that good customer relationships are essential to your business but even more so in challenging economic climates.
While you should keep seeking new customers, your existing loyal ones can be the key to helping you through a recession.
Spend time maintaining those relationships. Find out what they need so that you may be able to quickly modify an offering to make it more attractive to them during a downturn. It may also be easier to get repeat business from them. It can be practical to ensure your service levels are higher in these tough times.
Understanding their changing needs may help you preserve your revenue streams.
5. Reduce debt
The more capital you have available to draw down on the more you may be able to weather the recession storm.
Economic downturns will buffet your business and that spare cash may be the lifeline to keep your business stable.
Prepayment of debt may also save some interest expenses. Having said that, if you do need extra finance, don't wait until you're in a cash crunch to look for financing. It may be more expensive in a recession.
Start planning now
Making plans could help you weather these storms. And remember, New Zealand's economy has weathered – and bounced back – from these storms before. The country has experienced four recessions since 1988 and all have been relatively shallow.
The global financial crisis sparked the longest and lasted from March 2008 until June 2009.
Present economic conditions have already toughened many business owners. But it still doesn't hurt to closely re-examine your business and see what you can do to make it even more resilient.
Businesses can remain profitable in these economic downturns through careful planning and actions.
Do you have the right cover?
While it can be tempting to cut cover costs without consulting with a professional, this can be risky. Discuss whether you have the right cover with your broker today.
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