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Recession survival requires drastic moves and a mindshift

by • September 17, 2020 • SME LoanComments (0)109

By most accounts, this is going to be a long recession, we’re still on the downward slope, and as a small business owner, you will be forced to think of recession survival

By: Nesa Rahmat/

recession survivalBy most accounts, this is going to be a long recession, and we’re still on the downward slope. As a small business owner, you will be forced to make drastic moves to survive. As you get your company into survival mode, keep the following in mind:

Prepare for a deep, long recession.
Don’t count on a recovery until mid-2021, and even then, it may be a slow recovery. The global economy ran super-hot before the Covid-19 pandemic on overpriced real estate, and the correction won’t happen overnight.

Assume it’s going to get worse.
Like you, your customers are also cutting their expenses. As bad as the last 6-12 months has been, you may not be at the bottom yet.

The secret to recession survival is to be mindful of cash flow.
All of the following tips work towards improving your balance sheet – you want to pay out cash later and receive cash sooner. There are 4 main ways to do this:

  • Reduce and slow down cash outflows.
  • Increase and speed up cash inflows.
  • Position your business for a recessionary environment.
  • Get your team to be more productive than they’ve ever been.

Recession survival requires that you reduce and slow down outflows of cash. The first step is to cut or reduce your monthly cash outflows (ie., expenses).

Reduce your monthly rent.
Call your landlord and negotiate a lower monthly rent. Sign a longer term lease in exchange for the lower rent if you have to. Your landlord is running a business too, and they would rather have you stay at a lower rent, than to have the space be vacant for months. Point out that it’s better for both of you if they lower your rent.

Get a discount on utilities.
Consider all your utilities like water, power, Internet, and phones. Call your vendors’ competitors and ask what kind of deal they can offer a small business looking to save money on their utilities. Let them know you’re willing to switch vendors if they can give you a big discount (even if it’s just for the first year). The frontline sales reps will often have unadvertised discounts they can offer new customers. All you have to do is ask for them. Once you know how much you can save by switching, call your current vendors. Get them to match the offer so you don’t actually have to go through the trouble of switching.

Cut wasteful discretionary spending.
These are the newspaper and magazine subscriptions that were a nice perk during the high-revenue years, but now nibble away at your bottom line. However, this does not meant cutting cheap but morale-boosting expenses like cake for birthdays. Right now you need your employees to rally around the company’s survival, and a cake a month to keep morale up is well worth it. In the same vein, productivity boosting expenses like the coffee machine or a well-stocked soda fridge are relatively small expenses where the benefits in employee productivity far outweigh the costs.

Lease rather than buy. (Or buy used.)
Need a new computer or office furniture? Lease it instead of buying. You will end up paying more in the long run, but in a down market, it’s all about cash flow. If your business runs out of cash in 6 months, it won’t matter that you paid less for that desk by paying the full amount up front. When survival is the issue at hand, you unfortunately won’t have the luxury of doing things the “optimal” way. It might also be worth the effort to find more options of getting your equipment and further. In this economy, there may be plenty of used gear from recently closed businesses.

Pay payables later.
Call your vendors and get better terms. For example, you may be able to get 45-day terms instead of 30-day terms. Having cash on hand for an extra 15 days may be crucial in your survival. While you have your vendors on the phone, and especially if they won’t extend your terms, see if they will give you a small discount for paying early. 1-2% off for paying within 10 days is a typical example. Consider using a charge card to further extend your payables.

After slicing your expenses and cash outflows, the next step to think of in recession survival is to increase and speed up the inflow of cash. Like many other businesses, you may be facing plunging revenues.

Collect receivables sooner.
Get cash in hand by offering your customers a discount for paying sooner. A common discount is 1-2% off for paying within 10 days instead of the normal 30 days.

Keep your existing customers.
Don’t cut so much of your business expenses that you can no longer service your customers. Now is the time to remind your customers why they chose you in the first place. If it’s because you’re the most cost-effective, remind your customers that your low prices are even more important during the recession. If you’re not the cheapest, but you offer a premier product or superior customer service, remind your customers of the exceptional value you offer — and that price may not be the most important factor when determining total cost of ownership.

The business environment in a recession is very different from the good years. Customers spend differently, which forces you to adjust accordingly for recession survival.

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