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Business Strategy During a Recession

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Last editedOct 20222 min read

Recessions are generally defined in the UK as periods of negative economic growth spanning two consecutive quarters. They can be caused by sudden financial panic in the markets, spikes in commodity prices, or rapid societal changes, among others. Rising unemployment figures and national output can take a serious toll on businesses, but there are ways to safeguard against recession. Here’s how to formulate a successful business strategy during a recession.

Are there businesses that grow in recessions?

The difference between businesses that go under and businesses that grow in a recession sometimes boils down to luck. However, it’s often due to the type of product or service they provide. Some examples of recession proof businesses include those in the food and drink, utilities, and healthcare sectors. Low-cost comfort products tend to do well when consumers are looking for little treats, as do small luxuries such as designer fragrances and makeup. Customers might cut non-essential services during a recession, but they’ll still turn to the businesses that provide products they truly want or need.

A blend of good planning and risk management also helps when it comes to formulating your business strategy during a recession. Keep debt low and cash flow high to maintain your profits over time.

What are some key business strategies in a recession?

There are several areas to focus on when creating a business strategy during a recession. The first is finding a way to aggressively pay down any outstanding debts your business holds. These liabilities interfere with your ability to invest during times of hardship. It’s often difficult to keep up with payments as income falters, forcing businesses to make employees redundant or cut essential costs in other ways. The first strategy for any business should focus on managing debt. Get in touch with creditors to work out a suitable payment plan – before recession takes hold.

Another business strategy is to create new income streams. The trick during a recession is figuring out how to do this without spending too much on product development or other investment. Look at your current strategy to see if there are easy ways to diversify. For example, during the pandemic many B2B food producers transitioned away from selling products solely to restaurants and hospitality businesses. They started selling directly to consumers as well, sparking a trade in mail-order ingredients enabling individuals to prepare restaurant-quality meals at home.

Here are a few additional surviving recession tips for small businesses:

Monitor your cash flow with a rolling forecast for the quarter ahead to avoid surprises.
Create and stick to a strict budget, trimming any unnecessary operational expenses.
Reduce overhead costs where possible by renegotiating supplier contracts or changing vendors.
Track your key performance indicators more carefully during this time, cutting any fruitless marketing endeavours.
Reduce churn by spending time on client relationships and their changing needs during this time.
Automate processes using the power of technology, such as online payments and contactless orders.

How to protect your finances in a recession

In addition to the surviving recession tips mentioned above, think about how to protect your finances in advance. This might involve discussing credit options before the downturn hits, negotiating favourable interest rates, and automating your accounts receivables process.

With GoCardless, you can reduce failed payments using our Success+ intelligent retries product, which automatically chooses the best time to run through payments that fail the first time around. This means less time is spent chasing up on outstanding payment collection.

Apart from automated payments and invoicing, it’s also wise to create an emergency fund. Most financial experts recommend that all businesses have at least six months of spare cash on hand in a safe account. This should cover any personal expenses as well as utility, payroll, and inventory during times of economic downturn. By preparing ahead, you can minimise the impact of recession on your business – and even thrive.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.