Who remembers the ‘good old days’, when business was good and managing it was easy? Well perhaps that is an exaggeration of the time before COVID-19 but certainly, for a lot of businesses, circumstances seemed more certain and less stressful. Yes, the uncertainty of Brexit kept many business owners awake at night but that has been over-shadowed by the impact of the pandemic across the UK and globally. We have reviewed the key considerations for business leaders in making a business recession proof:
Back in those good old days the talk amongst financial strategists and credit experts was ‘when will the economy start to downturn’. There was a belief that a recession was overdue and the advice was to start making preparations to recession proof your business now. Of course, no-one predicted that a recession would be kick-started by a global pandemic but having posted a fall in GDP for two successive quarters, the UK has met the technical definition of a recession.
Historically, this may have been cause for many business owners to be extremely concerned but somehow, it does not seem to be having the same impact as it would have had we not just been through a lockdown period. That is not to say that businesses should not be concerned, more that their focus has been on adapting and, for some, survival.
It is interesting to note that the advice to business owners on how to recession proof your business before COVID-19 and now has not really changed very much. In fact, many of those suggestions and strategies have had to be implemented during the crisis in order to keep the business open. Now that we are past that initial lockdown and ‘technically’ in a recession, businesses are starting to focus on the medium and longer term.
Cash flow monitoring
We all recognise the importance of monitoring and understanding your businesses cash flow, where the pinch-points are, making arrangements to cover short-falls. This has become a critical part of many business meetings over the last six months and will continue to be so for the foreseeable future. This now needs to be taken further by not just projecting the next week or month but forecasting for the next 12 months, 24 months and beyond using a variety of best- and worst-case scenarios to help the senior management team in their decision-making progress.
Financing
A natural extension of monitoring cash flow is the need to continually review the business’s financing requirements. You may not need it now and hopefully you will not need it at all, but having an open and honest relationship with your bankers or other finance providers will be of great benefit should you need their assistance. Securing your facilities while you are in a financially strong position is much easier than when times are tougher. Collate and have ready now the documentation that will be required in the event that you need to apply for support, know your options (what other lenders are seeking your business), how strong your position is to negotiate facilities, build your credit rating to demonstrate that your business is a good investment.
Diversity
Having multiple revenue streams is a tried and tested way to secure your income during a volatile economy. We have seen many businesses expand the scope of the offerings, providing complimentary products or services to meet the needs of their customer base. Business leaders should continue to challenge and build on this by considering which streams have long-term prospects and which are only viable in the short-term. There should be a ‘what next’ mind set to seek out new opportunities in order to expand and grow further. In many cases, making business development a priority is necessary to lay the foundations for future income streams.
Differentiate yourself
Once you have established your multiple income streams and identified those that are viable in the long term, you must then look at retaining and securing those streams. One of the best ways to do that is to differentiate yourself from other providers. This could be by simply creating a loyal customer base, becoming a specialist for a niche part of the whole market or providing something unique that your competitors do not or preferably cannot provide. Every business will need to consider a different approach but the primary aim is make it extremely difficult or impossible for your customers to want to move their business elsewhere.
Customer/client relationships
It is easy to become inwardly focused in times of crisis, however, the role of senior management needs to be much wider than that. You should never take for granted your customer/client base, they are your first and most reliable source of business. It has often been proven that taking care of you customers, providing them with a positive experience, showing an interest in them and understanding their needs is the best way to secure future income streams. Not only will these generate repeat and complimentary business with those customers, but it can also lead to new customers as they share their experiences with others. Word of mouth recommendations are less expensive than marketing campaigns and often much more successful.
Supply chain
A business’s supply chain can be just as important as its customer base. After all, the reliability and quality of supply will often have a direct impact to your customers experience. Understanding your suppliers needs and circumstances while at the same time securing alternative options will mitigate the risk of significant disruptions to your revenue streams.
Invest in a strong management and finance team
No one can be expected to do everything, particularly when the environment is so volatile. Having a strong team around you with the right skill sets is key to keeping the business on track. The finance team will become your best friend, keeping an eye on cash flow and providing a quick response when things are not going to plan. Much has been reported over lockdown about COVID-19 crisis teams that meet regularly in order to react to ever changing circumstances. Having the right mix from all areas of the business was fundamental to their success. The leadership team too has an important role in ensuring that the business is moving in the direction and having a positive impact for the longer term.
Invest in technology and infrastructure
The pandemic exposed the importance of having the right infrastructure in place. The move to remote working and the increased reliance on technology has been a struggle for those businesses that were not prepared. Keeping up with the latest IT developments requires a lot of time, resource and funding but the consequences of falling behind can out-weight those costs. We are experiencing a time where remote working, for many industries, has been proven to be effective. This has instigated a change in mindset and possibly a cultural change along with it. Investing in an infrastructure that is a safe, efficient and effective will elevate any business toward a successful future.
Test yourself
No leadership team can plan for every eventuality. What should be important however is that they do not become too comfortable or reliant on circumstances staying the same. Continually testing and challenging the business strategies and the teams will keep everyone thinking, moving forward and on their toes. Running a variety of scenarios, both good and bad (and very bad!) will help senior management become familiar with difficult situations and in turn to react in a positive and constructive way.
There may not be a definitive formula to truly make a business recession proof, but as recent history demonstrates, UK businesses and business leaders have the skills, ability and the desire to weather the economic storms that they are faced with. While there remain challenges and uncertainties ahead, there are lots of reasons to remain positive not least of which is the way in which businesses have been supportive of each other and the people who are working within them.