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Most entrepreneurs at least partially depend on the state of the economy for their businesses to thrive. During times of high consumer confidence, spending is higher, companies are willing to take more risks and most businesses are able to generate more revenue. But during times of hardship, it’s harder to get financing, revenue dries up and the entrepreneurial environment is more barren.
That said, it’s possible to see an economic downturn (or recession) as an economic opportunity, rather than a detriment. And with the right strategies, you can help your business thrive under these conditions.
Prioritize your cash flow
Your biggest priority should be your cash flow, or the money coming into and flowing out of your business. Many businesses have been ruined during recessions because they weren’t able to keep their cash flow positive. This can happen even if your business appears to be profitable on paper. To keep a positive cash flow, you have to issue invoices promptly, follow up on them if they aren’t being paid and have a plan for recouping costs if customers aren’t able to pay up. It’s also important to keep a tight leash on your expenses and delay payments until absolutely necessary to pay them.
Diversify your revenue streams
You can protect your business and increase its chances of financial survival if you diversify your revenue streams. The idea here is to create new means of generating income for your business; this way, if the recession wipes out one revenue stream, you’ll have ample backups to keep your business afloat. It’s a common strategy to minimize risk, and you should have plenty of options to consider. For example, you could start selling different types of merchandise, subsidize a blog with advertising or offer different services to your customers.
Focus on your core competencies and current customers
Of course, you shouldn’t be investing too heavily in areas with which your business is inexperienced or unfamiliar; doing so could stretch your budget too thin and end up causing you to face increased risks. Instead, focus most of your attention on your core competencies and your current customers. Your core competencies have allowed your business to flourish all this time, so they should be able to carry you forward even during economic hardship. Similarly, these customers have proved themselves loyal, so they’re less likely to leave than your new customers during a recession — as long as you continue providing them with the best possible service.
Trounce the competition
During a recession, your competition becomes a more serious threat. Every customer they win from you could worsen your situation; conversely, every customer you win from them can strengthen your position. Use this as an opportunity to win more customers from your competitors. You can do this by differentiating your brand in some meaningful way; for example, can you lower your prices? Provide better quality? Offer more robust customer service? Stand out in some way that matters to your target audience.
Make smart cuts
During a recession, many businesses will need to make cuts to stay afloat. If you find yourself in this situation, it’s important to make the “right” cuts. For example, many entrepreneurs end up cutting their sales or marketing budgets, but these can make your financial situation even worse. Instead, turn your attention to areas like these:
- Inventory. Pay attention to how much product you’re keeping in inventory, and try to reduce what you’re holding.
- Office/location expenses. How much of your office space goes wasted? Is it possible to move to a smaller space or a cheaper area to cut your expenses? Is it possible to work fully remotely?
- Technology. How many subscription services are you paying for, and do you really need all of them?
- Waste. Review all your expenses, and look out for things that aren’t actively adding value to your organization. Be willing to cut any type of waste you find.
Make long-term plans
Many of the decisions you’ll make during a recession will be focused on the short-term, helping your business survive the month. But it’s also important to use this time to invest in some long-term strategies. Long-term branding and marketing strategies, like search engine optimization (SEO) might not pay off immediately, but they have a much higher lifelong return on investment (ROI) than comparable short-term strategies. If you start building equity now, you can build a runway for yourself that can help you escape even the most threatening economic hardships.
Helping your business survive an economic recession isn’t easy, but it is possible with the right strategic initiatives. The next time the economy takes a nosedive, equip yourself with the right values, come up with multiple backup strategies and be prepared to adapt to new circumstances as they arise.
Originally appeared in Entrepreneur