In 1988 I was interested in starting a retail business. My partner, much wiser and wealthier than I, was someone who had weathered several recessions in his entrepreneurial quests and shared his insights that have stuck with me over the years. Here is what I learned from watching, listening and actively being involved in business ownership and investing through several recessions.
Recessions are part of the natural business cycles that happen regularly in the economy and are unavoidable in the course of the life of an entrepreneur. Other parts of the cycle include the bottom, then recovery from a recession. Market expansion and then market peak followed by another recession or market contraction. For businesses to be successful, they need to be able to withstand and even thrive during a recession. There are however things you should consider when you are buying or running a business as you head into a recession.
1. Is the business diversified enough to be able to attract enough customers and cash flow during tough economic times? The key word here is diversification. When our businesses are too singularly focused on one or few specific product or service offerings and demand changes as a result of economic contraction or inflationary pressures, we may be in trouble. A well diversified business has a variety of offerings that are geared to fill the needs, not just the wants of our customers. When we give our customers and prospects a variety of reasons why they should spend their money with us, we create for ourselves security in the fact that we have continued demand for our existence.
2. Lean means Green! There is a saying that if you are not green you are not growing. When times are tough your business needs to be lean. If you are considering buying a business and it's marginally profitable, there could be value in the business if you can figure out how to cut expenses. Only businesses that are profitable survive recessions. The typical recession of which there have been 12 since 1945 has averaged 11 months although the 2008 recession was 18 months and 1982, and 1975 recessions were 16 months. Your business will need to either have enough cash in the bank to withstand the recession when people spend less money and the following recovery, or you will have to figure out how to ensure its profitability during tough times. Recently I wrote an article on 117 ways you can reduce your costs in your business. It might be a good read. Email dave@pivotleader.com with the title 117 ways and I will send you a copy of the article. The bottom line is that you will have to sharpen your pencil and cut your costs to ensure you are a survivor.
3. Plan don’t Panic: You are going to be faced with a variety of scenarios that might happen to your business as you head into a recession, plan and don’t panic! Many of the long standing businesses in your sector understand what it takes to be successful during recessions. Research what it takes to be successful in your industry during recessions, talk to old timers, and make friends with your industry pioneers! They will give you insights that you can incorporate into your business plans for tougher times. Your job as a business owner or investor is to make sure that your business survives and thrives during economic contractions. Without a plan, you are going to be overwhelmed and anxious. Business owners who have plans sleep better, feel better and are more successful. Get your team involved in your consideration of possible outcomes you are facing and come up with a plan. Once you have developed a plan or several optional plans, keep your team accountable to getting results. Panic rarely works out well in the long run.
Whether you are a business owner or a business buyer, you will want to have a business that is successful to protect your investment. Understanding that you need one, a diversity of reasons for customers to spend money with you, two, clarity about where you can cut costs and thirdly a plan to overcome challenges will give you an edge over your competitors. Recessions provide opportunities as well as challenges and your job as a business leader is to be strong enough to seize those opportunities.
Dave Fuller, MBA is an Award Winning Business Coach and the author of the books
Profit Yourself Healthy and Pivotal Performance. Consider emailing dave@pivotleader.com.