Firstly, let’s have a look at what recession means. A recession can be defined as two consecutive quarters of negative economic growth, which means that there has not been any economic growth for six months.
The bank of England has not officially stated whether the UK will enter a recession. However, economic growth is expected to slow down in the last quarter of 2022.
What are the causes of recession?
Many factors contribute to recession. We have just been through two years of the pandemic, which caused businesses to adapt to the unprecedented situation and solve new problems. However, we saw a 20% jump in growth at the beginning of this year, so it is an unlikely cause just by itself.
The Russian invasion of Ukraine, on the other side, is of course, more damaging, as the international price of gas and oil has caused a 54% increase in household energy bills in April 2022, and they are likely to rise again in October. (Hence the growth is expected to slow down again around that time.)
The UK and the rest of the world import rapeseed, oils, iron, corn and many other goods from Ukraine, which causes the prices worldwide to sore but also causes hunger in Africa.
To explain inflation simply.
You may not be using too much sunflower oil at home, but factories making your favourite crisps or your local Mackey D’s do, bringing up the prices of those and many other items. You will feel it in your pocket because you can buy less for your money (inflation rises). In return, you will want to save money and stop spending it, which will bring down the economic growth and bring on the recession.
What would recession mean for your business?
Not even the experts can predict how long and how severe the recession will be, but it is essential to recession and future-proof your business now.
Knowing how much is coming in and out of your business is more important than ever. If you don’t know what you can expect coming in and going out, you won’t be able to react quickly enough, which may put your business at risk.
About 75% of businesses experience a decline in revenue and profits during a recession because customers are more careful with their money and cut down on luxuries. It can impact small and medium businesses more, especially those with limited access to alternative financing.
However, your business can stay profitable and thrive during a recession by combining good planning and smart organisation.
5 ways to help you recession-prove your small business
- Focus on your finances.
Use accounting software
to see your figures in real-time. Don’t use spreadsheets and don’t use desktop software; give yourself the best chance to thrive and focus on real-time figures.
You don’t have to do it yourself; outsource it – it’s not an expense, it’s an investment into the future!
Build a safety net for your business. Save up about 30% of your income for taxes.
Ask your accountant to do management accounts and cash flow plans for you; it will help you see what you can afford to save up for rainy days. Building a saving pot may save your business.
- Pay off any debts if you can afford to.
If you have a high level of debt, your business will be especially vulnerable during the recession. The more debt you have, the more cash you will need to make the interest payments.
- Focus on using software and systemising your business.
Do you spend time doing the same or similar task repeatedly? Is there software that could make your life easier? Focus on technology and make your business a smooth-running machine
that needs as little input from you as possible.
Review your business foundations, could you improve anything? At the end of the day, you wouldn't expect to build a house on the sand, would you? Writing a business plan
may clarify a lot of things for your future.
- Invest time in client relationships.
Do you stay in contact with your current customers and provide good customer service? Are they aware of all of your services? You could be earning more from the client base you already have.
Building relationships with your clients and understanding their changing needs could help you through a difficult time.
- Build more revenue streams.
Create more ways to bring revenue to your business. Add services at a wider price range. Don’t put all the eggs in one basket. Having multiple revenue streams coming into your business will help you deal with the recession and stay afloat.
Final thoughts
If there ever was a time to focus on your finances, it’s now. Take control of your cash flow! A staggering 82% of
businesses fail
because of cash flow problems. Don’t become a statistic!
Create an action plan, don’t wait until you really need help. Make a list of tasks you can or need to do to improve your business, and start working on it now. Ask your customers for feedback to strengthen your brand and improve existing services. Brainstorm new ideas and bring in new revenue streams.
Most importantly, focus on your finances. Investing in an accountant can bring you savings you didn’t know about and ideas on how to recession-prove your small business. Your accountant isn't an expense; she is an investment.
Looking for a starting point?
