5 Ways To Recession-proof Your business
Posted on November 24, 2020
Australia has been out of the woods over the past few decades since the time of the recession ‘we had to have’. The country has done well to elude the worst ever global financial crunch and has recorded tremendous economic growth.
But recently, the media has been hinting that we’re right in the thick of a recession.
According to a survey carried out by PwC, CEOs are no longer optimistic. The ongoing economic deceleration both locally and globally, besides the political distress and trade conflicts all around has forced the topmost brass in businesses throughout Australia to express little confidence in the nation’s growth prospects.
However, it’s not so much about whether the market will contract but rather when.
If tomorrow’s media headlines screamed of a potential disaster and consumer sentiments plunged to the floor, what would that mean for your business? Would you be afraid or stay optimistic about new opportunities that would emerge? Or become worried wondering whether you will withstand the crash?
This guide is designed to assist you in preparing for the worst case scenario even if it never gets to happen.
The article features 5 important steps to protect you against a possible market crash. And not only will the guide help safeguard you from bad times, but also give your business a competitive edge in good times.
1. Cash Buffer
Stockpiling cash sounds easier in theory than in practical. While this step looks clearly obvious, a recent ASIC report showed that 40% of business failures are caused by a lack of cash flow. A substantial part of the problem emanates from what’s known as the ‘Parkinson’s Principle’. This principle states that ‘Work expands to fill the time available for its completion’.
Have you ever realised that when you have to complete a task within an hour, it takes an hour? And that when you only have five minutes you’re somehow able to get it done within that time?
That’s Parkinson’s Principle at work.
The concept is applicable to other areas too.
Take losing weight for example. Humans have a tendency of eating everything that is on the plate (Yes, my hand’s definitely up on this one). If we made the plate smaller, we will eat less food without realising any difference in satisfaction. That too is Parkinson at work.
So, if you apply this principle to your money, it’s important to understand that you (or your team) are most likely going to spend any available cash.
Keeping money away for a rainy day is one of the ancient tricks in the book but from experience many businesses can’t survive without fresh revenue generated for a period of 4-6 weeks.
As your business continues to grow and cash accumulates, somehow, you will find new ways of spending this money. Obviously, most of the new expenses will be genuine operational costs relating to your growing business.
Yet, after close examination, you will recognise that a good chunk of the new spending relates to non-core activities. Maybe you may decide to re-brand despite there being no good reason to do so (other than the fact that you got bored with the usual ‘look’ of your business cards and letterhead).
Maybe you decide to get a few more Uber Comforts when you were comfortable using the Uber X earlier on.
It’s easier to fall into this trap when you fail to prioritise stockpiling cash for what is only needed. One of the main challenges is that most small business owners have their funds coming in and out from the same bank account.
“As sure as the spring will follow the winter, prosperity and economic growth will follow recession” – Bo Bennett
This is likened to putting all your food on one plate—or restricting your available time to complete a given task. The single bank account is a recipe for never ending cashflow problems.
If this is the way you’re running your business, then forget about building it into a profitable establishment. It’s simply impossible to track your transactions and any in flow will be quickly spent.
As a matter of fact, if you withdraw some cash (profit) and lock it away once it’s received, you will figure out how to run your business with what’s left. Trust me, you definitely will. (You probably began with nothing and managed to work out things). Surpluses often make us become less creative hence it’s better to whisk away some cash now, and start figuring out how to run the business with what’s left.
For any profitable business model, the magic number is always six.
To prepare your business more adequately for a crash, from now on, get into the habit of allocating revenue into different baskets that is, bank accounts, instead of putting all your eggs in one big basket.
Six may sound like an exaggeration but it helps you keep track as well as form healthy habits. Each account should have a separate purpose.
Business accounts: The magic six
Tip: Make it simple—check your account every week and transfer everything available in your income account into the other accounts.
Managing your business finances in this manner not only helps you avoid overspending, but also ensures that you have adequate cash for both the expected ad unexpected expenses—all these while remaining with enough money to make a difference in your realm.
Action stations: Open your accounts today.
If you don’t restrain yourself by apportioning money to the key areas of saving, donating and of course paying yourself, you will end up spending every dollar of your revenue.
This step should help you grow your business quickly though it’s not PROTECTING your business and you are at risk of ending up where you will be consistently chasing your tail or in a worse place.
Your challenge: Break Parkinson’s law—Keep in mind that nature only changes when it’s forced to. Your business behaves this way too. Taking the challenge to rise above your urge to spend every penny earned is a decision you’ll never regret.
2. Cost cutting
Proper allocation of your money is the initial step. You should also be able to significantly reduce the cash outflow if you have to prepare yourself well for a crash.
And, this doesn’t mean you should go for cheap things in the name of cutting costs. The last thing you should do is reduce costs to the point where your brand is affected negatively.
Spending less does not equal to doing less. Never throw your baby out with bathwater and cut costs to the point that you can’t operate your business.
What you ought to do is gain a thorough understanding of every single expense that pertains to running your business and find out which of these expenses can be minimised or eliminated altogether.
To achieve this, you will require a 3-step process:
- Identifying hotspots
- Prioritise the ones to cut
- Incentivise the cuts
To identify hotspot, look for the following three categories in your financials:
- Recent increase in costs
- Expenses that cost a lot more than any others
- Costs that fluctuate
In case your operations are a one-man show, do this on your own or seek the help of a qualified accountant but based on the size of your organisation, you may have to allocate this task amongst the various teams or departments in your business to make the work easier.
Once this step is completed, choose the ones that belong to these three categories:
- Mission-critical and highly valued
- Highly valued but not mission-critical
- Non-mission-critical and low-value
Any item that falls under category one shouldn’t be touched unless you find away to make it more cost effective without causing any negative impact on operations. The best example here would be the truck maintenance expense if you’re a logistics company.
Items that end up in the second category can be somehow manipulated to become cheaper. Consider the fridge in your break room. It’s not an item of much value to your business but if eliminated, people will not be happy. Maybe it would be prudent to replace the fancy water bottles for the more affordable home-brand variety.
As expected, anything that falls under the third category can be done away with. For example, mobile plans for those who rarely leave the office and don’t respond to work-related calls from home. It’s likely that you have more subscriptions on your online tools and websites than you really need. Be sure to review each item one by one.
Prioritise Costs to Cut
Before choosing the items to cut costs on, you may have to consider prioritising them. Make this process easier for you and your team by allocating the expense items in each of the following categories:
- Hi-return, low-complexity
‘Big Gains, Easy Wins’ – If cutting a non-mission-critical item will give you good gains and you can do this as easily as cancelling a subscription account that never gets used, make a move immediately.
- Medium-return, low-complexity
‘Moderate Gains, Easy Wins’ – Get rid of the items that may not save your business thousands, but which are simple to cut out, like switching from premium to standard subscriptions or changing your stationery supplier.
- High-return, high-complexity
‘Big Gains That Are Tricky to Implement’ – This may include creating a new strategy, for example setting up a sound-proof meeting room with a large screen so your team isn’t always jumping into Ubers to see clients.
- Low-return, high-complexity
‘Small Gains That Are Tricky To Implement’ – Considered lowest priority, this includes the changes which take a while to implement but won’t impact your overall revenue by a significant amount.
Incentivise Expense Cuts
No one likes the idea of spending less, in most cases because they imagine they will be missing out on some important thing, so give your team reasons why they should consider cutting costs.
First and foremost, be honest. If the business cuts on expenses, everyone on the payroll gets to keep their job. This is basic truth often ignored or understated. Working for a well-established company is always a privilege and so it’s often easier than imagined to motivate your teams to take an active role in cutting costs without giving them incentives or cash bonuses.
The next step involves building the culture of saving money within your organisation. You may decide to achieve this by turning the whole idea into a fun game by encouraging weekly meetings where teams do their best to outsmart each other in terms of the amount saved. The winner should get some form of reward which should not be necessarily monetary.
The third and final step is transparency. Let your team have access to the company’s financials and budgets so they can be in the picture and understand the ultimate effect of every cost-cutting measure they’re implementing. They can also participate by tracking the scores and follow closely how the business is progressing as one way of staying motivated and identifying even bigger cost-cutting opportunities.
Carry out expense reviews regularly like four times each year so you may understand the money that’s flowing out that in essence, shouldn’t.
3. Assets And Automation
Having eliminated costs, the next step is to consider the fact that you’re paying your workers for their time and that time is expensive, especially here in Australia.
To make the most returns from every dollar spend, master the art of delegating and automation.
Your best and highest paid employees should be free to handle the highest-impact tasks that produce more revenue for your business.
When it comes to low-revenue tasks, delegate. Assign them to junior staff or trainees so you can focus your energies and attention on more important matters.
What You Need To Know About Business Process Automation
Business Process Automation reduces noise from the business, helping you save more on resources. This isn’t the task of a business owner but the team members who should be able to invent and implement workflow automation that helps save time and money.
Seven things to automate:
- Customer service
- Lead generation
- Sales workflow
- Marketing and social media
- Meeting minutes
What You Need To Know About Assets
Basically, the term asset refers to anything that produces new value when you and your team are away. Picture your business from a distance. Now hold that thought and picture it without people. The degree to which the business will still run is the level to which you have built what can be considered as an asset-driven business.
Investing in the right assets makes workflows move faster and can automatically generate quality inbound leads, cut the time spent on training a new team and ensure your business runs into the future as a well-lubricated machine.
Every asset purchased should deliver clear and measurable returns on investment while enhancing efficiency.
Examples of assets
- Online Tools and Software – Third-party apps will make working hours more productive.
- Business Systems – Consistency is key and this can be streamlined by introducing systems.
- Procedures and Processes – Developing internal procedure documents and videos will eliminate wasted time.
- Automation Tools – Allow the latest technology to complete tasks for you and your team.
The Goal Of Workflow Automation And Assets
In most cases as businesses grow, they become complex with more expenses, more layers and additional moving parts.
By constantly striving to cut or eliminate expenses, automate tasks or delegate easy tasks to junior staff or interns, you will be building a business that will not only thrive but will also be efficient. Profits increase while running costs reduce. There should be systems in place that will ensure that when you or your team is not there, the machines keep working.
Aim towards recession-proofing your business by operating lean and gaining maximum returns on every employee on your payroll.
When a recession hits, instead of getting bloated with more people who shouldn’t even be there while your accounts get drained by unnecessary expenses, your business will only become the best version of itself.
Carry out an exercise involving you and your key personal and jot down every repetitive, non-skilled tasks they perform every week and how long the tasks take to complete. How much more would the business make if this time was spent on revenue generating activities? This explains just why hiring virtual assistants who usually charge lower rates can ultimately propel your profits to higher levels.
4. Standing Out
One of the best ways for your business to achieve a competitive advantage in your market is for your brand to be recognised as the “go to” brand.
This objective of being more visible and trusted should never be ignored. Positioning yourself as an industry leader makes any other major activity in your business more efficient and cost-effective.
Imagine your brand being recognised in your market as the number one ‘go to’ brand and you the founder being acknowledged as a Notable Person of Influence in your industry. You and your business have been top in the media, and flooded with invitations to speak in large-scale conferences and events. What then happens to your cost per lead? How easy would it be to attract top talent to your company? Would your company be able to close on that major partnership faster? The answer is yes of course.
Unless you get recognised as one of the ‘go to’ brands in your market, you will struggle to thrive and everything will be costly.
Make a business that stands out
Businesses headed by founders who are renowned, trusted and liked are more resilient in a meltdown because people prefer them and consider them as the best.
5 things to consider:
Perfect Your Pitch
During good times, you might be tempted to become a little lazy around marketing and effective communication. Your business’ ‘pitch’ is the backbone of your customer value proposition. It should captivate and draw the attention and interest of the target audience faster and more powerfully. Take a moment to answer this question:
“Why should a person prefer to work with you over your competitors?”
Publish Thought Leadership
Publishing content is one of the most effective ways to reach your target audience and start generating ‘inbound’ opportunities. Building credibility to ensure your message is heard by those with potential to help increase your business growth is important, however, the number one reason why most people fail to provide content consistently is lack of time.
Your objective should be to generate enough content such that if someone tried to ‘content gorge’ on your material, it would take them more than 7 hours and forcing them to visit at least 4 different platforms to succeed.
For instance, someone may decide to watch a 90-minute talk recording you shared on YouTube, and thereafter listen to a 2 hour podcast episode before spending another hour reading various articles you’ve published. Obviously this may not happen every time—but could happen over time with the magic number 7 hours across 4 different platforms. This should be your target and in case the market declines and opportunities dry up, you will enjoy a wider ‘net’ that will reward you with a steady flow of new business.
Build A Product Ecosystem
Single products and or services don’t bring in money but product ecosystems do. Every business should be able to succeed in the following 4 types of products:
Every product layer in your ecosystem must deliver the following results:
- Capture ATTENTION and generate a LEAD.
- Build TRUST and generate a QUALIFIED LEAD.
- Solve a problem and generate REVENUE.
- Offer continuous support and generate RECURRING PROFIT.
If your product layer cannot fulfill these 4 types of outcomes, your business will fail to attain the level of efficiency it needs to achieve in order to thrive given that over reliance on human time is costly and may not achieve these expected outcomes.
Raise Your Profile
Nowadays, Google dictates who you become online and you are who Google says you are. Try and Google yourself and company right now and see what shows up in the search engine from a prospect’s perspective, a marketer or potential talent or key alliance partner.
Do you spell authority and credibility? Now try and google your competition. How are they performing? You will either have to seriously pull up your socks if you want to remain relevant over the next 3-5 years OR you will realise you have the opportunity to standout from the crowd. Either way, you must act fast.
Have a poor profile? Just add the word S.A.L.T.
There are 4 crucial areas you ought to master. Ask yourself if you are worth the S.A.L.T. in your specific market.
S = SOCIAL MEDIA
No arguments please, you’ve got to nail it on social media. We suggest you focus more on this step once you start rocking the next three steps.
A = AWARDS / ACCOLADES
We were ranked the 8th fastest growing company in Australia (Award). We were named by Inc.com as “one of the leading business accelerators in the world” (Accolade). Create a list of awards or accolades that best fit your business.
L = LIVE APPEARANCES
Receiving invitations to speak, host, judge or sponsor at a well publicised industry event that touches your target market has real impact and enhances your credibility. Do you have a speaker kit? You can’t afford not to have it.
T = THIRD PARTY MEDIA
Finding yourself and your company in the media, on other renowned person’s blogs and podcasts—anything that involves someone else featuring you and your business and what you do.
Begin with ALT, then move back to S and you will be impressed with your results on social media.
WARNING: Just like salt, “personal branding” should be added in small quantities to an existing “main course” of any successful business. But on its own, it can turn bitter.
There’s nothing great that has ever been achieved through isolation. One of the most effective ways to improve existing opportunities despite the market conditions is by forming partnerships, joint ventures and alliances with interested high performers in the sector.
The 3 types of partnerships you should consider are:
PRODUCT Partnerships: These partnerships enable you to provide added value to your customers without you or your business having to build extra internal capacity. For instance, an accountant may create a partnership with a banker or a broker, delivering better outcomes for the client.
BRAND Partnerships: These partnerships help to align your brand with a company, brand or a reputable person that boasts more credibility in the industry more than you. For instance, if you host a webinar or talk show with a given famous celebrity, the association will enable the celeb to transfer some of their brand’s goodwill to your brand. The same is true for any partnership or association with a blue chip company.
DISTRIBUTION Partnerships: These partnerships enable your business to reach a wider audience. For instance, a sales and marketing company may choose to promote the services of a reputable web developer to their clientele and vice versa. If there’s no conflict of interest between the two partners, then this can translate into a very powerful way of driving new business at no extra cost to either party. One of the most effective tools for succeeding in any given market condition is by establishing a broad range of distribution partnerships.
The secret is not starting at one or two. If you have already worked on each of the previous 4 steps, you should have a powerfully credible message, with different content and a well-tailored product ecosystem that will help you to establish more solid partnerships.
5: Help (Self & Others)
It’s important to create a “circle” of partners and suppliers who can hold your back during tough times. The main thing in this step however, is how YOU can dive deeper to help others during their hard times.
What products or services can you produce and deliver in order to help others survive the crash? If you can answer this question, then you will be able to position yourself in a manner that will enable you to receive cash inflows. You can also take advantage of the situation to keep the cash coming in and stamp your authority in your field.
Who does your business need?
Draw a list of external partners or providers who can support you through the downturn. These can include Accountants, banks/finance providers, Business Coaches, Suppliers with flexible terms, JV Partners specialising in lead generation and any other persons your business might need along the way.
How can you help others?
Create a list of ways you could help others faced with difficulties during a recession.
Market crashes provide great opportunities to those who are prepared. As early as now, you can begin marketing your products and or services either in readiness for or to cushion yourself against upcoming recession.
Hope has never been an effective strategy when handling an economic crisis nor will it help with your sales and marketing.
If you have no confidence that your business can be able to weather a recession, it’s never too late to start and the good news is that you can start now. Take the first step by opening additional accounts (or delegating simpler tasks to junior staff to focus on more important matters).
Proper, Early Preparation Prevents the Probability of Poverty!
The additional bonus to recession-proof your business means you’ll immediately start to streamline your operations and reserve more of the revenue you’re generating.
When you’ve got a fat bank account during a recession, you gain the power to grow your business in substantial ways faster than when the market conditions are normal. Not only will you buy things cheaply, but you will also source top talent eyeing your company because it is stable and will offer steady income.
When recession hits, expect to see carnage. But, when the economic sun starts rising again, those that were resilient through the tough times will hit the ground running faster than before.