During periods of economic downturn or recession, the determinative factor for businesses is not the adversities they face, but how they overcome them. It is important to remember that while economic change may impact your business, chances are that it’s impacting other industries as well. A fast and smart response can determine your success. There are many tough decisions that come up during economic downturns and your goal should be to leverage those into a solution.
How to Respond to Economic Downturns?
Reflection and Adaptation
The focus now should be on preparing for the future ahead of you. While a lot of businesses remain in crisis mode, now is the time to reflect and adapt to the situation and current trends. If it’s possible, conduct surveys and analyze relevant market research. Pick the brains of leaders from other industries to determine what their best practices are. Are you able to modify and apply those practices to your business? At a fundamental level identify your company’s strengths and expertise. This could range from production capabilities to customer incentives and retention strategies.
For example, during the COVID-19 pandemic, we saw many products such as cleaning agents and hand sanitizer fly off the shelves. In light of this, many distilleries across the country, faced with operating restrictions, pivoted from producing hard alcohol to alcohol-based hand sanitizer. Therefore, creating a new source of revenue and the ability to retain many of their employees. Don’t be afraid to think outside the box!
Use your relationships and contacts
While adaptation is critical, another key factor in responding to an economic downturn is utilizing your business relationships to work for you. Going back to our previous example, although the distilleries had sufficient quantities of the integral ingredient of hand sanitizer, ethanol, available there was still a need to obtain additional chemicals and materials required for production. This is where having the right relationships comes into play as in this case it was not uncommon to see distilleries trade supplies with their fellow vendors and contacts. Thus, creating a steady supply stream and a win-win situation from both sides.
Strategic Planning Processes
Begin planning out a strategy so that your business can be fully equipped to take charge of the situation. If you have never had a proper strategic planning process in the first place, now is the perfect time to create one. This could include updating any plans you already have in place or even drafting new contingency plans for the future. Consider creating business operating procedures for handling unusual circumstances, such as natural disasters, pandemics, or other exacerbating circumstances. While it may be hard to consider, this is also an ideal time to either implement or update a procedure for permanently closing your business.
Having a plan in place prior to closing your business can help relieve stress and reduce costs associated with closing a business down. It’s also important to review your current contracts for provisions and clauses related to waiving or amending the performance of contractual obligations in the event of catastrophic circumstances or events. If you’re not too thrilled with these provisions in your current contracts consider consulting an attorney to provide you with a thorough legal analysis of your specific situation.
While considering the previously mentioned steps it’s important to utilize the connections available to you. Consider conferring with your business banker, CPA, or financial advisor on financial matters. It might also be prudent, as we have mentioned earlier, to consult with an attorney regarding contracts or legal advice for your business. Don’t forget to reach out to other industry leaders, whether it be the same or a different industry, for information on best practices.
Remember, an economic downturn does not have to be a death sentence for your business. Change creates opportunity. Business leaders who react quickly and develop a proactive plan to deal with a changing market fare much better than those who don’t.