Riding the Rollercoaster – How to protect your business and thrive during recession?
We have officially entered a recession, with the Gross domestic product (GDP) falling by 0.1 per cent in the first quarter of 2023, and the RBNZ is ready to raise interest rates again if necessary.
As we navigate through these challenging times, there are predictions that our country may emerge from this recession. However, economists at some of the nation’s leading banks are already cautioning that the road ahead could be bumpy, with another recession looming later this year.
Regrettably, economic momentum has slowed, and according to the Bank of New Zealand, ASB Bank and ANZ Bank New Zealand, the economy is forecasted to contract in the final quarter of this year and the first quarter of 2024.
With interest rates rising sharply to combat inflation, affecting households with home loans, and businesses relying on lending to finance their operations or expansion, reviewing our business strategies and financial plans remains paramount.
Created with one goal in mind, to serve as a valuable resource for helping business owners weather the challenges ahead and thrive during an economic downturn – we invite you to buckle up and join us as we prepare for this rollercoaster ride.
After all, a recession can be daunting, but staying informed and proactive can help your business weather the storm and potentially emerge from it strengthened. An essential first step in understanding the issue is to ask yourself:
Are certain areas of your business particularly vulnerable to a recession, and do you maintain sufficient cash flow to sustain your operations through an economic downturn?
Is it possible to reduce business costs without compromising the quality of your products or services and to adapt your product or service offerings to meet your customers’ needs during tough economic times?
Are there perhaps even new markets or customer segments that you could target in times of recession?
Finally, may we ask about your strategy for enduring a recession and setting your business up for future development?
If you are unsure how to answer those questions, start by evaluating the current financial health of your business and creating a strategy to handle cash flow efficiently.
As highlighted in our recent blog post titled ‘Cashflow vs. Profit: Why Cashflow Reigns Supreme’, it is vital for your business to distinguish between cash flow and profits and plan accordingly. Even profitable operations can run into financial trouble if they do not have sufficient cash flow to cover expenses or debt obligations.
By developing a comprehensive cash flow management plan, your business can proactively monitor and manage its cash flow to maintain healthy financial operations even during economic downturns.
In addition to managing cash flow, diversifying revenue streams is another key issue for businesses in a recession. Relying on just one source of income can be risky, as it can expose your business to market disruptions or changes in consumer behaviour. Therefore, consider exploring new revenue streams or expanding into new markets to reduce risk and increase profitability.
Another critical aspect to address is the role of technology in business operations and customer engagement. With the ongoing trend towards digital transformation, businesses should consider investing in digital tools and platforms to streamline their business operations, improve customer experience and reach out to new customers online, such as adopting new software tools, launching an e-commerce platform or leveraging social media channels.
Not only can technology help your business survive during a recession, but it can also position it for long-term growth by increasing efficiency and scalability.
Here are six further options worth considering:
- Review your business expenses to identify areas where you can reduce costs: Look for expenses that are not essential to your business and find ways to reduce or eliminate them, including reducing travel expenses, renegotiating contracts with suppliers or reducing your office space. By identifying these areas, you can free up funds to reinvest in more profitable parts of your business or those that require added resources for growth and success.
- Explore new funding options: As interest rates rise, your business may need to look beyond traditional lending sources to tap into new funding options. For example, you may want to explore crowdfunding, angel investors or venture capital.
- Evaluate and improve your supply chain: Disruptions to your supply chain can affect your business in several ways. Consider evaluating each step of your supply chain to identify potential bottlenecks or vulnerabilities. By optimising your supply chain, your business can improve efficiency, reduce costs, and enhance its resilience.
- Focus on marketing and customer retention: During a recession, marketing and customer retention become even more imperative. By investing in marketing campaigns that resonate with your customers and focusing on building a loyal customer base, your business can maintain a steady stream of revenue even when the economy is struggling.
- Stay alert to new opportunities: A recession can be a daunting challenge, yet it can also bring new possibilities for growth. Keep an eye out for emerging trends, new markets or unexploited customer segments your business might be able to tap into.
- Be adaptable and flexible: Be willing to pivot your strategy, adjust your operations and explore innovative solutions as circumstances change. In other words, stay nimble and responsive to changing market conditions.
In conclusion, while the current economic climate may pose challenges, our Accountants Plus team would be delighted to discuss additional options to help your business survive and thrive.
Rather than being paralysed by fear, stay proactive and adaptable, remain nimble and maintain a long-term perspective as your key to overcoming any obstacles and achieving business success.
Accountants Plus: We are here to help you improve, grow, and enjoy your business journey, even amid uncertainty.
Contact us today for a consultation.