5 Ways Recession Can Impact Your Business

March 13, 2023

According to economic experts at the Wall Street Journal, there’s a 61% chance of recession taking place in 2023. 

The IMF (International Monetary Fund) has also warned that it is highly possible for a third of the world to experience recession as the main engines of global growth – the United States, Europe, and China – all experience weakening activity. 

So, what does this mean for your business? 

Even though recessions don't usually last for more than a few financial quarters, the effects can last much longer. Here are just a few ways that a recession could affect your business.

1. Less money in the bank

As economic growth slows down, your customers – whether its direct consumers or businesses – are less likely to spend. This means that your business might not be able to make as much money as usual, so you'll need to cut costs to make up for it.

You might need to put a stop to investing in new products or initiatives and potentially let go of some of your employees, all to ensure that you have a lean overhead.

2. Credit crunch

Businesses and consumers aren't the only ones who have to be more careful with their money. Lenders will also tighten their purse strings, which makes it harder for you to get the lines of credit that you would otherwise have access to. Interest rates could go up, and it will be harder to get a loan.

3. Disruption in cash flow

During a global recession, it is harder for both vendors and customers to get paid on time. You (or your accountant) might have to spend more time chasing down unpaid bills, and you might have to delay your own payments to your suppliers. 

This can affect your relationships with your vendors, so be sure to maintain a strong relationship throughout this difficult time. Things will get hard, especially if you’re running a business-to-business (B2B). If one of your clients goes out of business, they might not be able to pay their bills, causing a significant disruption to your cash flow

4. Stock prices and dividends are going down

A reduction in cash flow and profit eventually makes its way to your business’s official financial statements, including your quarterly earnings report. At this point, dividends might decline or there will not even be enough profit for dividends. If you are not the sole owner of the company, your shareholders might even call for new leadership as stock prices drop.

5. Decline in the quality of products

Quality is commonly one of the things that goes down along with profits. As production slows down and you find it hard to pay your bills, you might start to look for new ways to cut costs and improve your bottom line. When you can't afford to keep your usual standards, this could cause a temporary drop in the quality of your service or product.

How To Survive (And Thrive) In A Recession

There will always be one crisis after another that might result in negative impacts for your business. The question is, what can you do to ensure that your business is crisis-ready? Here are a few tips to get started. 

Take a regular look at your finances. 

Don't wait until you're in the middle of a recession to look at your budget; you should do this regularly so you have a safety net and will be able to avoid having to lay off loyal employees or cut back on quality. Creating a cash flow forecast can help you plan out your finances strategically and prepare yourself for potential crises along the way. 

Think about your strengths.

It is possible to avoid laying off employees; but during a serious recession, it's highly likely that you'll have to put a freeze on new hires. To lessen the impact, you need to figure out how to make the most of the talent you already have through good management. Find potential leaders and train them to take lead. Make sure that you’re utilizing your team’s natural strengths efficiently, and use data-driven metrics to keep track of performance.

Prepare emergency plans. 

No business can completely avoid the effects of a global recession, but there are ways to plan for it. Make sure you've gone through different possible situations with your emergency plan in place. 

If you’re unsure on how to prepare for a recession or any other upcoming crises, I’m here to help. 

As the founder of Circularity Coach International and a Business Made Simple Certified Coach, I will be your guide in discovering the 6 key business strategies that can help you survive and even thrive during a crisis.

Get in touch today!

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