Resilient businesses are successful businesses. Business resilience in a recession often relies on strong cash flow and risk mitigation to manage the ups and downs of a struggling economy, or unexpected events such as a global pandemic, supply chain disruption or devastating cyclone. No small business wants to manage the adverse impacts of all four of these events, in the space of a few years, but some Aotearoa New Zealand businesses will do just that. We wanted to provide some helpful ways you can future proof your business for a recession, in particular, generating healthy cash flow.

Aotearoa New Zealand’s economy experienced a 0.6% contraction in the fourth quarter of 2022, down from the 1.7% growth experienced in the September 2022 quarter. A further decline is expected in the March 2023 quarter which would trigger a technical recession, as manufacturing, exports and tourism have slowed, and inflation remains at record highs.

Are recessions always bad news?

It is important to keep in mind that recessions, and the subsequent economic bounce back are all part of the economy’s normal cycle. As businesses, we need to be mindful that we’ll have good years, and prepare for the less successful ones. Not all industries and businesses are impacted by recessions either, some will experience growth at the expense of others when consumers pull back spending, or focus their spending on necessary expenditure rather than luxury purchases or nice-to-have services.

A recession can also provide opportunities for your business. As other businesses lay off staff or implement hiring freezes, this may provide an opportunity for your company to staff up and create your dream team. If your competitors are struggling, this may also give you an edge in the market to increase production, or expand your team to deliver additional services.

Without a doubt, a recession is a great time to really assess all elements of your business – income streams, operating expenses, where you could tighten your belt, and how you might diversify your product or service range. Leaning on your team to encourage creative strategic thinking can produce remarkable results and serve to improve your internal culture as well with a “we’re all in this together” mindset. 

What are 10 things you can do now to recession proof your business?

1. Review your business strategy

Sure, you’re a B2C business, but how might you tweak your offering to attract a B2B market as well? This is the time to think outside the square and act on recent customer feedback to tweak your product or service range to meet the needs of your customers today. Do they want lower price point options, mini versions, bulk versions, digital options or delivered options? How might you reprioritise your business strategy to ensure you maintain sales revenue, and therefore, maintain your cash flow?

2. Ensure you offer essential items

If your business doesn’t currently offer must-have or essential products and services, how could you tweak your offering to ensure different price points or variations on a product or service? Making your products or services more accessible to a wider group of people may just help you ride out a recession, until consumers are able to purchase your premium range again. Remember, people still like to treat themselves in a recession, but may do so on a smaller, less expensive level (think a stay-at-home cheese board rather than dinner at a restaurant, or DIY facial rather than a spa day).    

3. Build up your emergency cash reserve

What is your cash runway? While sales are still flowing in, use this time to build up cash reserves, and opt to fix and maintain plant and equipment rather than commit to purchasing new. Leasing rather than buying assets is also a sensible option in this environment to maintain your cash flow and ensure you have money in the bank to continue to pay your team and meet your operating expenditure, if sales do slow down.

4. Opportunities to downsize

If you have slow product lines, or services that aren’t top sellers, perhaps this is a sensible time to remove them from your offering and concentrate on your top performers instead. Focusing your team’s efforts and limited marketing budget on a few bestsellers could be a better way for your business to ride out the recession.

5. Diversify your revenue stream

The opposite of downsizing is diversification. For your business, there could be more immediate sales value in tweaking your offering to attract new customers – perhaps offering complementary products or services, or bundling current services could generate additional cash flow right when you need it. Perhaps it’s as simple as repackaging your existing range and marketing it a little differently, to a new target market. 

Also consider partnering with other businesses and using them as third party retailers or resellers. Collaborations and partnerships thrive in recessionary environments as small businesses join together to support each other.

Having multiple revenue streams will allow you to compensate for slower lines and invest time and energy in the products and services that are demonstrating strong growth.

6. Talk to your customers

When times are good, we often don’t feel the need to truly understand our customers – their pain points or aspects they love about your product or service. Take advantage of an economic downturn to better understand your customer base – they’ll appreciate you taking the time to listen, and may provide you with ideas you can take to tweak, evolve or grow your business.

7. Review your business processes

As a business owner, are you taking on admin tasks that are holding you back from growing your business? Consider outsourcing admin tasks such as accounts, deliveries, HR, tax, payroll. The time you free up by contracting a bookkeeper or virtual assistant to support the day to day running of your business can pay off if you have more time to get out there selling, supporting your team and talking to your customers.

8. Tighten up your invoicing process

When cash flow security is critical to keeping your business running, it’s more important than ever to have tight invoicing controls:

  • Send invoices out promptly,
  • Follow up late invoices quickly and ideally using an automated process so it doesn’t waste your precious admin time,
  • Offer flexible payment options so customers can choose a method that suits them.

9. Create a cash flow forecast

Monitoring expected sales and expenses can help take the ‘surprise’ factor out of a bad month. Anticipating your slower sales periods, and proactively tackling this can help you climb out of a slow cash flow period more quickly.

10. Managing tighter margins

You may find it unavoidable to pass on price increases to your clients. With a tight economy and high inflation, your business costs are increasing along with the squeeze on your customer’s household budget. Not many businesses can absorb inflationary pressures for too long, but if you choose to increase your pricing, do it once and do it right.  

Cash flow security and business protection are clearly key for the future of a small business during a recession. Doing all you can to maintain sales revenue, decrease unnecessary overheads and keep talking to your customers is important.

 

 

If you’re keen to improve your small business cash flow, the IPromise app and its 100% secured customer payments, before the job begins, is a game changer. The reassurance that you’ll be paid immediately after the agreed job is completed can enable you to get on with doing the parts of the business you really enjoy. And who doesn’t want less admin?

IPromise conveniently integrates with Xero accounts, automatically copying IPromise approved quotes/invoices into Xero to reduce your payment administration time by up to 80%.

It is worth considering that as a recession ends, typically an economic expansion begins. If you’ve been careful managing your business through a recession, you should be well placed to grow your business when the economy starts picking up again.

Whether you work in Professional Services, Construction, Consulting, Manufacturing, or any other service-based industry, IPromise will add payment security, improve cash flow, reduce administration time and enable open, easy communication for your projects.