How to Grow Your Business in a Recession
As a business owner, you’ll constantly be aware of trading conditions and how they affecting your business. As a new year dawns, it seems like it is bringing a recession with it. But what is a recession and does it spell disaster for your business?
What is a recession?
Under normal circumstances, the economy of a country grows. As goods and services are produced, incomes usually rise. This is known as the Gross Domestic Product (GDP). If the GDP of a country is rising, the economy is in great shape but If this figure starts to fall, it means the economy isn’t doing so well. When this trend continues, it can mean the country heading for a recession. If the economy fails to grow - that is, it contracts - for two quarters in a row, it is in recession.
The last recession we had was in 2020 at the height of the pandemic. Figures published recently by the Office of National Statistics (ONS) show that the UK economy contracted from August to October 2022 and although there was slight growth in October, the economy is struggling. Overall, the UK economy is expected to be in recession in 2023.
Update - the UK economy, bolstered by the recent World Cup, unexpectedly grew in the last quarter by 0.1%.
What does a recession mean for businesses?
Recessions affect businesses differently - it can depend, for example, on the financial health of a company or sole trader, whether there are cash reserves or significant debt and whether you have a Crisis Management Plan in place.
Profits decrease as people buy less but we are also seeing margins squeezed as prices increase of raw materials. These costs are eventually passed on to the consumer.
Cashflow is also affected and not just by fewer sales.As suppliers and vendors struggle, payments on accounts may not be made on time, placing the flow of cash into a business under pressure.
For those companies with shareholders, stock prices decrease which adversely affects dividends.
What may also surprise you is the reduction in product quality. Suppliers will try to circumnavigate increasing prices of materials by opting for cheaper alternatives. Whilst this isn’t necessarily a bad thing, it may mean that consumers are paying the same price - or more - for a product they consider substandard. You’ll have noticed this in relation to food in recent months. The price may be staying the same but quantity or size of the product is reduced.
Does consumer behaviour change during a recession?
Undoubtedly, there is an affect on most people’s spending habits. The price of energy, as well as food, has risen sharply in recent months and for many people, it means no money left after the bills have been paid. In some instances, it can mean that their income doesn’t cover all of the bills.
For others, it can mean changing their spending habits but for a small percentage of the population, spending continues ‘as usual’.
Can a business grow during a recession?
You would think from all the doom and gloom around a shrinking economy and a recession set to last throughout the coming year that businesses will find it hard to survive, let alone grow.
But with careful planning, it is possible.
Increase marketing and advertising spend
Spending more can feel like it goes against the grain and of course, throwing money at a problem doesn’t always make it disappear so before you spend thousands of Google Ads or a TV advert, strategise every aspect of your marketing plan.
During a recession, loyal customers are your primary source of growth. You’ve already converted them to trust you, so why concentrate all efforts on finding and converting new customers?
Some business owners, especially those who have weathered economic storms before, understand that virtually all their competitors are reducing their marketing spend. Increasing your marketing efforts to encourage repeat custom should be at the forefront of your efforts, as well as making sure that new customers know who you are too.
Any marketing strategy should aim to:
Maintain cash flow
Encourage repeat custom
Bolster your position for when the recession passes (and it will) and people start to spend again
Improve Online Presence
The number of people who shop online is increasing but how and why people shop online is also something that you need to take a look at and then consider how your online presence answers these needs.
An excellent online presence attract ‘qualified leads’. In other words, the consumer has done their research, read the reviews, understand both the product or service they want and the company they are purchasing from.
And don’t think that online means you can appeal to your local clientel either. Many customers will shop local, even online, and if you have a high street presence as well as digital strand to your company, you have two channels to exploit.
Create, if you haven’t already, and maintain a Google My Business profile for your business
Overhaul your email marketing strategy
Consider an SEO audit of your website to improve organic growth, as well as improving your offering to your customer base
Build Brand Recognition
In turbulent times, we all cling to something familiar and a recession is no different. Just think of your regular shopping trip to the local supermarket. Whilst you might be prepared to compromise with the ‘own brand’ label on some products, there will be one or two items that you just cannot forgo your favourite, whether that is brown sauce (as in our household!) or bread.
We do this because we recognise that when we buy this product from this brand, even though we pay more, we are (almost) certain that we will get the quality product, taste, performance and so on, that we want.
Sharpen up your brand kit, adding your logo and colours at every opportunity you can
Use social media to humanise your brand and build this sense of trust
BUT be consistent!
Cut the ‘Lowest-Performing’ 20% of Your Customers
We’ve all heard it and, as bookkeepers, we have seen this so many times with our clients (we also begrudgingly admit to being caught in this trap too) and it is a hard lesson: clients or customers who are slow to pay or require a huge amount of YOUR effort to get a bill paid need to be cut off.
And yet, here we are, in a recession where every transaction and customer is like gold dust! It is brave but here’s the thing: these slow or non-payers are costing your business money. There are better clients out there who want and need your services, and who will pay on time. They may start small but as the economy recovers these are the people you want (and need) to work with.
Pour your efforts into customers and clients who pay and work with you
Consider who are in the bottom 20% of your customer base - could you offer them an alternative service? Should you ‘cull’ them?
Improve Customer Service
Customer behaviour does change in a recession and whilst you may decide against diversifying or expanding your products or services at this time, there are other things you can do - and one is to improve your customer service.
It may be top-rated already but there are improvements that could be made. And the reason why comes back to the issue of customer loyalty. When a customer experiences personalised, attentive customer service they are more likely to buy from you again.
Consider automating some processes but sharpen the customer service message within them
Add other channels to expand how customers can contact you such as live chat during business hours
Sharpen Up Finances
Now is not the time for frivolous spending but it also not the time to not spend either. In terms of finances, it is all about planning and having a real-time overview of business finances.
Chase debts and for bad debts, consider debt collection
Sharpen credit control across the entire company
Cull expenses by deciding between ‘wants & needs’
Negotiate better deals if you can with providers and suppliers
Stay on top of your accounting each week and month
Make the most of your bookkeeper and accountant!
The Recession Will Pass (but we need to ride out the storm)
The recession will claim casualties as it will winners. By being agile, flexible, and attentive to your customers, your business has an excellent foundation from which to not only survive but thrive. Weathering a recession is also a great business lesson because, as the saying goes, calm seas never made a good sailor…
