By slowing sales and dropping profit margins, recessions impede business, generally. During business recessions, minimizing these effects proves critical for future recovery and growth. Inventory management itself remains crucial, demanding revamped process flows, new products, and fresh resources to protect revenue.
Most advise operators to always keep a close eye on cash flow, but business recession increases the need for watching bloated workforce costs and tightening financial security. In ecommerce and beyond, better inventory management practices offer fewer problems. This encourages a learner, more flexible approach that’s ready to adapt and act quickly.
Here we offer simple strategies to recession-proof businesses, despite industry or size. You’re encouraged to rethink business efficiency, improve customer experiences, and build the financial foundations to withstand recessions. Discover how businesses flourish during a recession, and find the tips to operate like one.
Key Takeaway: Agile flexibility is worth more than force when trying to thrive during a business recession. Experiment with new efficiency and pivot to limit the possible stagnation or shrinkage of your bottom-line.
What is Business Recession?
Most simply, “business recession” describes a period of slower economic activity. Most businesses will see significant falls in profits and sales during these times, and many more also see tighter restrictions on available credit and cash flow. As a result, recessions increase unfortunate levels of unemployment and reduced spending from consumers on once in-demand products or services.
Some business recessions are short, others can lead to long-term closing of businesses and even total bankruptcy. The COVID-19-induced recession, for example, created widespread constriction to the economy and permanent shuttering across business types.
Major Causes of Business Recession
You might think the causes of recession are mostly economic or financial. Actually, business recessions react to psychological conditions as well, creating cycles that work against industry and personal well-being.
For instance, supply chains disruption can cause a recession to develop, but so can a financial crisis that forms from the effect of high interest rates, stock market crashes, or property price bubbles.
Compared to the effect of low interest rates and stable markets for housing and investment, these all start to slow and reverse profitability as they damage consumer confidence. As faith in finance falls, consumers cling to their resources, creditors tighten lending, and corporations lay-off workers by the flock.
Deflation rates and inflation rates impact businesses further when they fluctuate alongside these tides. Like stones sunken into still water, their consequences echo into rising unemployment levels, dips in spending, and unpredictable crashes for business profit. It easily resembles the dark aftereffects of economic stagnation.
Although, some operations can weather such financial storms, becoming business that flourish in recession.
Recession-Proof Business Types
Some businesses appear more essential than others, even in times of business recession. These include mainstays of modern culture, such as cleaning or laundry businesses and even movie theaters, coffee shops, or cafés.
Among the most “recession-resisting” business types that manage large volumes of inventory, auto repair and car maintenance companies stand on high ground. Most consumers—no matter the level of economic instability they feel—are willing to keep their car in working order.
Other recession-strong businesses include discounted product sellers and home good stores, especially if they operate online when on-premise traffic can fall.
At-Risk Business Types in Recession
Smaller businesses tend to get hit harder by business recession. Because they lack the strength and scale of larger competitors, tightening credit, lower sales, and slower profits often spell bankruptcy.
The factor that almost invariably forces businesses to shut their doors permanently will almost always be an inflexible strategy that won’t pivot with change. Businesses that won’t repair inefficiencies in vendor payment processing, for example, stay at an elevated risk. Stiff inventory management practices then easily stress or break business as strain increases.
In short, all business types must manage the risks within their circle of control. Since recession’s forces and public perception is outside of that, only the willingness to adapt costs, restructure, and revise business plans can usually help block the impact of recessions.
4 Focus Areas to Build a Recession-Proof Business
From the beginning, opening a business demands a stable and supportive plan for cash flow as the brickwork of financial foundations cement over time. But, there are many more factors to help reduce the effects of a looming business recession for your company.
Here are four factors and useful reflections to guide your look at how to “recession-proof” businesses:
- Customer Retention: Consider how you can deepen your customer loyalty program regardless of what they fear financially. What can your business offer to entice repeat buying and strong customer order cycles?
- Customer Experience: You might also wonder whether you can simplify the purchasing or payment process for additional convenience. What simple changes will boost overall customer satisfaction?
- Business Intelligence: Looking at which products are the beating heart of company profits saves companies from hurting during a downturn. What would business data say are our truest assets are?
- Operational Efficiency: Be careful as you cut staff, shrink inventory, and reduce options for customers. How can you streamline operations without affecting end-game quality?
Frequently Asked Questions for Thriving During Business Recession
Clearly, businesses of every size can only try new practices, added efficiency, and more flexible strategies during times of economic recession. The core of any business owner’s concern usually rests with that question: where can we improve strengths and reduce inefficiency?
Most often, owners and operators are keen to know more than this. They want to get specific about which products, services, and business models are certain to come out alive and thriving. Look to the most common questions about business recession below, and see how you can steer your business toward a silver lining during a downturn.
Which businesses do best during a recession?
Businesses, on the whole, that people cannot or will not live without are most “recession-proof.” Auto repair, child care, home maintenance, and cleaning or grocery services are some of the last to experience a decline in sales or a slowdown in profits from the unpredictable conditions of recession.
It makes sense that grocers, gas stations, discount stores, and delivery businesses (among many more) can even thrive during the periods of uncertainty that business recession brings. These same businesses help people to feel more secure, cared for, and safely provisioned as they try to run their lives as close to normal as they can.
What businesses are hit the hardest by recessions?
While businesses in any sector or industry feel the effects of a recession, smaller companies with fewer resources are usually impacted most. Smaller operations can struggle to secure the resources, data, and flexibility needed to improve efficiency and profitability quickly.
Categories of business most affected usually exist in non-essential categories like high-end restaurants, niche tourism or travel, and real estate in particular. In fact, any business can get hurt during economic faltering if the public or target audience no longer views them as a worthwhile experience “in these times.”
What products sell best during a business recession?
If a company makes essentials and necessities, they are likely going to survive an economic recession without much consequence. It’s more likely, as people prepare for the worst effects of financial instability, that staple products like grocery items, cleaning supplies, and household goods can start to catch higher demand as well.
Even still, many stores, businesses, and brands can outlast economic turns when they serve crucial needs that people won’t (or don’t wish to) live without. That’s why discount stores fare relatively well during financial uncertainty for other business types.