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Business Recession Strategies for Survival

Provided by SME Solutions Center - Kenya

How do You Deal with Economic Downturns?

Financial recessions have become commonplace occurrences. Your business is likely to be affected by an economic slump. Major effects include reduced sales that cause excess inventory levels. You will also notice slowed accounts receivables owing to debtors’ eroded paying power.  

Mitigation Measures

Planning in business is key to handling recession problems. You need to move with speed to address economic declines and related problems. You need to diligently keep track of your business’ numbers. One tactic involves trying to maintain payroll and sales figures within suitable ranges. Moreover, you as well need to closely monitor inventories and accounts receivables. Such could ensure survival in a business. 

Handling Financially Troubled Vendors

Your vendors will sometimes suffer economic crises. At such times, it is not feasible to immediately abandon the troubled vendor.  To avert unexpected surprises, you are advised to always have current and precise knowledge of your vendors’ respective financial statuses. You could run yearly credit audits on your key suppliers. These reports would identify existing or impeding financial constraints among the vendors.    

Management Options during Economic Downturns

When faced with financial slumps, you need to institute relevant mitigation measures.  Some elements for your reconsideration include:

  • Discretionary costs and variable expenses
  • Staffing costs
  • Customer numbers
  • Inventory
  • Seeking outside help
  • Offering discounts
  • Seeking short-term credit

Minimising Personnel Costs through Outsourcing

Staffing expenses usually weigh down small businesses. Outsourcing can suit you when business slows down. It guarantees extra manpower without the expenses associated with discharging employees.

Revaluating Discretionary Costs and Variable Expenses  

Economic downturns require you to relook at key business elements such as the budget. Important budget elements you need to critically examine include variable costs. You need to devise ways of reducing discretionary costs.

Minimising Inventory Levels

To determine whether you will reduce inventory, you need to evaluate fringe product sectors. This strategy will eliminate product areas that do not offer good returns on investment.

Axing Customers

Economic downturns call for tight controls of revenue. Customers who fail to pay in time threaten this requirement. Consequently, you need to revaluate your customers so as to identify the grossly defaulting ones for axing.     

Seeking External Help

Loyal partners, such as vendors, employees, or customers, could assist you to stay afloat. You could ask for their help during hard economic times. Your employees, vendors, as well as customers could offer ideas or make concessions that could facilitate your survival.

Pursuing Short-Term Credit Facilities

You may need a financial boost so as to wade through financial slumps. Credit card companies could come in handy. Their programs are sufficiently short-term and flexible to suit your needs. You may even benefit from the bonus and discount packages offered by credit card firms to loyal customers.

Extending Discounts

Economic recessions affect all players in the market. The resultant slowed business is not conducive. You need to continue operating even amid such difficulties. Discounts on specific items could give your business a lifeline, thus preventing its closure.     

Undoubtedly, hard economic intervals bring with them unfavourable effects to your business. Slowed business, defaulting debtors, or excess inventory are some negative consequences. As the business owner, you need to institute speedy measures to tackle the gloomy circumstances. Such measures could mean survival in a business. Through prudent inspection of business performance figures, you will detect and efficiently tackle negative phenomena. Importantly, you have to keep close tabs on business items such as accounts receivables, sales, payroll, and inventory. Your objective re-evaluation of business expenditures will identify items that can be safely omitted. Reducing selling prices on select items could also help. You could as well eliminate customers especially those who have problems paying. Outside financial and nonfinancial assistance could also help to keep your business afloat. Essentially, your chosen recession strategy arises from careful planning and speedy handling of crises.

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