Historically, recessions occur every decade. Some are more impactful than others. And while a recession invariably has negative impacts, some businesses are poised to survive those negative challenges while others are not. What can you do to recession-proof your business?
Surviving a Recession
There are a few common characteristics of businesses that survive a recession:
- Providing a needed product or service
- Consistent revenue stream
- Sufficient cash reserves
- Strong management
While these seem obvious in retrospect, each business owner can take steps to build a strong foundation to recession-proof their business.
Provide a Product or Service
The most important foundational aspect is to provide a product or service that is needed. During a recession, consumers cut back on discretionary spending and focus on their needs. So how do you position your product/service so that it is a need rather than a want?
The short answer is marketing. Satisfying a need or a consumer’s pain point is what’s required to ensure when they cut back on discretionary spending, your product or service is not one of the expenditures that is cut.
For example, at Tax Time, we do not prepare tax returns, but provide peace of mind. Everyone has received a letter from the IRS at some point in their life and the return address is enough to cause anxiety. What we provide is the relief of that anxiety. That is an example of taking a basic want (CPA prepared tax return) and turning it into a need (peace of mind).
Consistent Revenue Stream
Developing a consistent and steady revenue stream is important. We refer to this as “sticky” revenue. Consistent and steady revenue is superior to seasonal spiking revenue. $300K spread evenly over 12 months is much better than a few months of high revenue followed by months of low revenue. Therefore, many large corporations are shifting to subscription revenue streams. Even BMW is trying to figure this out. They now charge a monthly fee to activate the heated seats in the car you buy. We offer subscription plans for all our clients and work with many small businesses to develop consistent revenue streams.
Building Cash Reserves and Strong Management
The last two foundational aspects (cash reserves and strong management) necessary to recession proof your business are derived through creating a strategic budget and reviewing that budget compared to actual results monthly. What is the adage? No one plans to fail; they just fail to plan. By developing a strategic budget, and measuring the monthly results against the budget, you will build a strong foundation and the cash reserves will build over time.
Tax Time CPAs can help provide the financial guidance you need for your recession-proof business strategy. Contact our office today and let’s plan for your tomorrow.