Fears are growing for the UK economy after GDP shrank by 0.3% in April, the second successive decrease after it shrank by 0.1% in March. This came as a surprise to many analysts, it is the first time the economy has shrunk for 2 months since the start of the Covid pandemic. Some analysts are warning that the UK risks falling into recession.
Businesses and individuals have been affected by rising prices, with inflation forecast to hit 10% later this year. Prices of everything from food, to fuel to raw materials are rising at the fastest rate for 30 years so everyone is starting to feel the pinch. The Bank of England has warned the UK faces a “sharp economic slowdown”. Tony Danker, director-general of the CBI, said he was “expecting the economy to be pretty much stagnant”. And that it would feel like a recession to many due to the rising cost of living.
So should you be worried about a recession? How can you prepare for it and ride it out?
What is a recession?
A recession is declared when there has been negative economic growth over two consecutive quarters. Recessions generally come about from a general drop in spending. This may be due to a financial crisis, a stock-market shock, the bursting of an economic bubble or natural disaster like a pandemic. The recent pandemic, followed by the war in Ukraine have combined to raise inflation. There are signs that consumers are decreasing spending because of the rising cost of living which could push us into recession.
During a recession people spend less so companies struggle with lower revenues. They are then forced to make redundancies so unemployment rises. This leads to even less spending which can make the cycle last longer. Recessions are an inevitable part of the business cycle as economies swing from boom to bust and back again.
The impact of a recession is mostly negative therefore, but if you plan well enough it is possible to come out the other side stronger than before. During a recession many weaker companies will fold due to decreased revenue. This will open up the market so if you are strong enough to survive you may find that you reap the benefits when it is over. Plan well, react early, then market yourself well when things start to look better and you may find that your business comes out well on the other side.
Businesses such as exhibition stand contractor Quadrant2Design came out of the last recession stronger than ever. MD Alan Jenkins said ‘We suspected it was coming and prepared well, made sure that we were in a strong financial position with a good product offering and solid customer base. The recession took out several of our competitors, leaving us with more business when things picked up’.
How to plan for a recession
The stronger your business is, the less likely it is to be badly affected by economic downturn. You need to plan well ahead to prepare for recession. Some strategies you can follow to protect yourself include the following:
- Maximise revenue with the resources you have
When times are good you need to make sure your business is doing as well as it possibly can. Focus on marketing and customer service to gain and retain your customers. If your business provides top notch customer service you are likely to retain and grow your customer base which will set you up to survive financial downturns.
Reviewing your marketing strategy will help you to attract as many new customers as possible. Are you communicating your competitive advantage effectively? Is there any other way you could target new customers? What are your competitors doing? Make maximum use of free marketing tools like social media and word-of-mouth advertising to build your business up.
- Manage your staffing costs
Ensure you know exactly what your staff are costing you and assess the value of each. This should be used to set the price you charge for your products or services. When facing economic downturn it may be necessary to reduce staff numbers to save costs. Build the morale of those left to increase motivation. Involve them in the day-to-day running of the business and decision making to make them feel included. Reward good performance with trips or days out.
- Avoid taking on finance
Try to avoid getting into too much debt in good times so that you are not liable for repayments when times are tough. If you do need finance to expand be sure that you will be able to pay it off quickly.
- Look for cost savings
Review your spending and make cuts where possible. Can you negotiate better rates with suppliers or switch suppliers? Making savings where you can will help you build up resources to see you through rough times.
- Network
Learn how others survive recessions to help you see your business through. By networking you will not only gain helpful information, but you may also be able to form alliances with others who can help your business.
- Innovate
Developing innovative practices will help you to stay one step ahead of the competition. You may be able to automate some business processes to save time and money. For instance installing a CRM system or doing more online.
- Adapt your offering
Ensure you are offering the product that the market wants, is it the best product it can be? Are there any improvements that could be made? How do you fare against the competition? Ensuring what you offer is top notch will help you survive bad times.
Recessions are inevitable, unfortunately. But by being mindful of them and preparing for them during the good times you can be confidant that your business will survive them, and may come out stronger on the other side.
