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Economies tend to face headwinds every 10 years as the business cycle moves from periods of growth to contraction. While recessions are challenging for small and medium businesses across Australia, it doesn't mean there aren't significant opportunities to strengthen your business and come out of challenging times stronger and more profitable. In this blog, we're sharing five ways you can recession proof your business.
How is Australia in a recession?
Firstly, it's important to understand what it means for a country to be in a recession. Since Australia's last recession in 1991, the country has had an average annual economic growth rate of 3.3 per cent. Technically speaking, a recession is defined by two consecutive quarters of decreasing GDP, which is what started across Australia in March 2020. What's most significant about the economic data from March 2020 to April 2020, is the underemployment rate increased from 8.8 per cent to 13.7 per cent. This underemployment rate and the fact that the unemployment rate grew from 5.2 per cent to 6.2 per cent in April is significant. It is the highest one-month rise in unemployment in Australia, since the 0.9 per cent rise in unemployment during the 1982 recession.
How can you recession-proof your business?
While Australia felt some of the headwinds of the GFC, our economy hasn't had a recession since 1991. To get through any period of uncertainty, you need to put strategies in place that will help your business navigate this downturn and come out the other side stronger and more profitable.
Don't be afraid to adapt your long-term plan
One of the best things about being a small or medium business owner, particularly if your company is privately-owned, is the ability you have to be nimble and change your strategy and operations quickly. It's a lot harder to do this in larger organisations. Remember this when you have the opportunity to change something, even if it's challenging. You can start by reviewing your long-term plan and identifying how it can be adapted. For example, you may delay previously planned investments, while you may bring forward a review into your business's financial management.
Review your costs
Costs are often the first thing that business owners review when they're recession proofing their business. A review of your costs should include the last two to three financial years (if applicable) of all types of business costs. Review these costs from the view of determining which costs helped the business most in remaining profitable and growing the business. Be careful not to be too aggressive with cost-cutting as this may slow your productivity and hinder your ability to take advantage of new opportunities in the short to medium-term.
Consider new growth and income opportunities
Throughout the COVID-19 pandemic, for example, we saw businesses around the world adapt their operations to meet growing demand for specific products and services. For example, some alcohol distilleries started producing hand sanitiser, while other companies re-worked their manufacturing operations to produce face masks. This is your time to take a step back and look at how your business may be able to adapt and serve new customer bases as a result of shifting demand.
Understand your support and funding options
A natural inclination to solve problems on your own is probably what makes you a strong business owner. However, it doesn't hurt to research and understand the different support and funding options available. Review the various types of Government support available for your business, including grants that may help you grow a new revenue stream. If you don't have adequate cash reserves, you may also need to look at different funding options. These options include taking on more debt, bringing in new investors, or re-structuring the way your business purchases its assets, for example, moving to an AASB 16-compliant lease structure. The key here is accessing enough finance for liquidity without the business becoming reliant on this funding for solvency.
Talk to an expert
It can be lonely shouldering the responsibility of owning and running a business, so it can help to speak with someone objective. If you're unsure about how to implement strategies to recession-proof your business, make an appointment with a Robertson Scannell business advisor, who can help you identify the best solution for your unique situation. Often this investment can far outweigh the potential time and financial investment of going down the wrong path as you adjust your strategy and operations.
Keep moving forward
Owning and running a business isn't always easy, but the challenges and strategies you put in place now will make you a better business owner now and into the future.