Recession proof your business with these seven practical tips

In recent years, the Australian economy has experienced several periods of economic uncertainty, including the global financial crisis and the COVID-19 pandemic. As a result, many business owners are searching for ways to recession-proof their businesses and ensure they can withstand economic downturns. Here are some practical strategies for recession-proofing your business in Australia:

Build a strong cash reserve

One of the best ways to recession-proof your business is to build a strong cash reserve. Having cash reserves means that your business can weather any economic storm that may come its way. You can use your cash reserves to cover your expenses and pay your bills, even when your business is experiencing a downturn. 

Ideally, you should aim to have at least six months’ worth of expenses in your cash reserve. You should build a three-way model, comprising of a balance sheet, profit and loss and a cashflow. This will allow you to undertake a sensitivity analysis to identify the impacts of changes to key variables. For example, if sales drop 20%, how long until the business runs out of cash reserves?

Diversify your customer base

Another way to recession-proof your business is to diversify your customer base. If you rely too heavily on a single customer or industry, a downturn in that market can have a significant impact on your business. Diversifying your customer base can help you spread the risk and reduce the impact of a downturn in any one market. Consider expanding your products or services to cater to new customer segments.

Focus on customer retention

Customer retention is critical during a recession. It’s much easier and cheaper to retain existing customers than to acquire new ones. Invest in building strong relationships with your existing customers. Offer them incentives to stay loyal to your business, such as discounts or loyalty programs. Provide exceptional customer service to ensure that your customers remain satisfied with your products or services.

Reduce your operating costs

During a recession, it’s important to reduce your operating costs to improve your business’s bottom line. Look for ways to reduce your expenses without compromising the quality of your products or services. For example, you can negotiate better terms with your suppliers, reduce your overheads by implementing energy-efficient practices, or streamline your operations by adopting new technologies. 

Each year you should prepare a bottom-up budget, meaning a more detailed budget than a top-down one. This allows you to review each expense and ask yourself the following questions: Do I still need this in the business (i.e. you may not need a fax anymore), are there more cost-effective alternatives and is there a better way to do this, if it is still needed (i.e. with improved technology).

Invest in marketing

Marketing is essential during a recession. It’s a way to stay visible and top-of-mind with your target audience. Invest in marketing initiatives that are cost-effective and have a high ROI. For example, you can leverage social media to reach your target audience, create engaging content that resonates with your audience, or collaborate with other businesses to expand your reach.

Innovate and adapt

Innovation and adaptation are crucial during a recession. Businesses that are agile and adaptable can quickly pivot their strategies to meet changing market conditions. Look for ways to innovate and differentiate your business from your competitors. For example, you can explore new markets, develop new products or services, or adopt new technologies that help you operate more efficiently.

Seek professional advice

Finally, seek professional advice to help you navigate through a recession. Consult with business experts or financial advisors who can provide you with insights and strategies to recession-proof your business. They can also help you identify potential risks and opportunities and provide guidance on how to manage your finances effectively. It is amazing how many people only use their accountants to prepare their taxes once a year. Many accountants are also business advisors which can assist and create value well beyond the fees charged.

In conclusion, recession-proofing your business in Australia requires a proactive approach. By building a strong cash reserve, diversifying your customer base, focusing on customer retention, reducing your operating costs, investing in marketing, innovating and adapting, and seeking professional advice, you can prepare your business to weather any economic storm that comes your way.

Remember that recession is an inevitable part of the business cycle, and the key to success is to be prepared and ready to adapt to changing market conditions.