Developed countries are also facing the brunt. Earlier it was the COVID-19 pandemic, and now the ongoing war between Russia and Ukraine. It has given a major jolt to the commodity markets worldwide. The countries being the key exporters of many commodities such as wheat, sunflower oil, fertilizers, and energy, the entire production and trade is under disruption. Prices of wheat and sunflower seed oil have been skyrocketing as Ukraine has been unable to export the commodities to the European countries. Energy prices have soared. Living expenditures are at their height. Not only Europe, but Africa is also suffering due to the war. Inflation is at its peak in the United States. Recession has begun to set its foot in India as well. The world over is becoming hawkish under such circumstances. Investors are becoming awry of the markets. Recession, for sure, is at our doors.
Economic downturn hits all: developed and underdeveloped countries, rich as well as middle-class people. It brings a fall in demand for goods and commodities, and hence a fall in the aggregate sales for businesses. Large businesses have greater resilience to cope with economic shocks. But, small businesses are more vulnerable to changes in the economy and get hit harder for the reasons cited below:
- The performance of the entire business depends upon the competencies of just one or a few persons.
- As they are already small, downsizing, to cope with rising costs, is also difficult.
- Small businesses have less diversified economic activities, and this makes them susceptible to poor demand-related shocks.
- Financially also, they are much weaker.
- Their inventories are also limited.
- They depend heavily on credit.
Handling and surviving recessionary trend, is, therefore, more difficult for small businesses than the bigger ones. However, small businesses can adopt some strategic tactics to manage their businesses during downturns and grow. Strategies may vary with resources, capabilities and abilities, and perception of threats and opportunities. An entrepreneur’s response to such downturns should be guided by the cyclical nature of the industry they are in. The extent to which recession is affecting their competitive environment should also be taken into consideration.
If you are a small business owner, below are some strategies to strengthen your business during an economic downturn.
Realign your business model to create multiple revenue streams:
You can’t stick to just one specific, product, service, idea, or strategy, even when the economic sky is clear and blue. You need to be proactive and try everything to understand what works for you and then steer accordingly. It’s even more important to pivot when the aggregate demand for products and services slows down. If you had a B2C model, try going B2B, and the other way round. Make sure you are venturing into the allied areas just to ensure that the deviation does not pull you off the track. If you sold soaps to customers before, try selling soap-base to small soap-making businesses as well.
Break free from the local market mindset:
One need not sell just locally when there is an option to sell globally. Businesses today need not be the traditional types. There is no need to worry about filling the pipeline with inquiries to get confirmed orders. There are readymade platforms with ready-to-serve customers. Go digital. Make your store available in the online space. If you already have one, try out other online marketplaces as well.
Monitor your inventories well:
Monitoring inventories do not mean holding those so tight that might result in sales loss. During the slowdown, demand slows. Hence, inventories need to be such that it's neither more nor less. It’s about maintaining a balance between converting inventory to cash and retaining the ability to fulfill new orders. Small businesses may take the help of low-cost tools to manage their inventories. Some of those are Zoho inventory, Orderry, Quickbooks Commerce, Vyapar, etc.
Scan your environment for possible association with other businesses:
During the economic slowdown, people are on the lookout for bargain deals. It’s tempting to get butter for half the price with their usual bread buys, right. So, networking and associating with businesses similar in line with your business can be a great way to push sales. Consider forming alliances with other businesses. If you sell flowers, collaborate with your next-door chocolatier. Your special friend would always appreciate some flowers with chocolates. That way, you may also discover new opportunities, customers, staff, and business partners with little or no cost.
Keep investing in your existing customers:
It’s comparatively cheap to maintain your existing customers than to acquire new ones. This is true for all seasons and times. But, during the economic slowdown, people cut down on their expenses. Persuading new customers to try your products and services for free for a short time can be a method to retain your customers. Therefore, it's crucial to invest in your loyal consumers. Promote the goods and services to this clientele. Give discounts, freebies, or supplementary offers while putting an emphasis on establishing long-lasting connections. Your clients' problems should all be resolved. Let your consumers know how much you respect their experience and pleasure. You can navigate challenging market conditions if you have a highly happy consumer base.
Keep an eye on your spending:
The path to recession is long and hard on the wallet. So reduce wasteful spending. Pay strict attention to your budget and cash flow. Of course, cutting costs without sacrificing high-quality goods and services is difficult. However, being innovative with your company expenses may be incredibly beneficial. Make sure you have a solid understanding of your financials and a defined business vision.
Worse has not yet begun. However, you must plan how to make your small firm recession-proof as a business owner. It's critical to take preemptive measures before the economy plunges much more if you want to stay afloat.