Preparing for an Economic Crisis
How can you protect your business against an economic recession? Obviously, not every business is the same; for example, companies that serve consumer needs, rather than wants, will have an easier time surviving the next crisis. Consumers tend to cut back spending on luxury items and other non-essentials, putting businesses that produce and sell those goods in more serious jeopardy. Still, almost every business will feel the effects of an economic downturn in some ways, and these are the strategies you can use to protect yourself
1. Diversify your client pool.
Your first job is to diversify your client base or customer base. If you have one major client you rely on for your income and that client is hit hard by the recession, you may lose the vast majority of your business. If you have lots of smaller clients, all from different areas, you can afford to lose more than one of them and still survive without much issue. Diversify your pool by seeking different types of relationships with different companies (and target demographics).
2. Have an emergency plan.
Simply knowing what your company would do in an emergency can spare you the runaround if it actually happens. The word “emergency” here is used loosely; you could categorize an economic emergency as losing one of your top clients, running low on available cash, experiencing a major decline in sales, or being forced to close one of your physical locations. Think things through, and have a game plan ready in case the unexpected happens.
3. Understand the unique demands of your industry.
Next, do some research into your industry and competition if you can, and look up what has happened during previous recessions. Is your industry one that’s traditionally hit hard by an economic downturn, or are there key areas of development you could pursue to help your business survive? Your greatest assets here are mentors and other entrepreneurs who have made it through recessions in the past; they’ll have firsthand experience and knowledge of how this could affect your business.
4. Prepare for potential budget cuts.
If your revenue crashes or you otherwise start having trouble making ends meet, your only option will be to temporarily decrease spending. In the event of such a crisis, it pays to have a plan made in advance, understanding where you would make budget cuts.
5. Have alternate sources of income.
You can also hedge your bets against revenue loss by establishing more diverse sources of income—and that goes beyond diversifying your client base. For example, you could start selling advertising on your site or use affiliate links to generate some extra cash. There are countless ways to make passive income through your website, and even more that you could create with new product lines or peripheral sales. The more sources you have, the harder it will be for a recession to crush your business.
By: Larry Alton