5 Strategies to Help Companies Survive in the Economic Crisis

Entrepreneurship is an activity that brings profit but is usually associated with different risks. Here are the most widespread ones:

• operational (connected with the company’s day-to-day activities)
• strategic (related to any potential problems that may have an impact on the company’s long-term strategy)
• reputational (which may have a negative influence on the brand’s reputation)
• financial (which may affect the company’s financial standing)

All of these risks can be mutually connected. For example, a blow to the business’s reputation may entail a falling demand for goods and a refusal to provide financing or credits. This is the reason why companies need to build up their business strategy correctly and take into account different factors (internal and external ones).

The internal factors include the elements that come from the inside or are controlled by the company, such as:

• human resources
• organizational structure
• corporate culture, etc.

However, it is important to understand that it is impossible to predict and prevent all risks in advance, and this is especially true for the external factors. The external factors are the elements that exist outside the company’s internal environment and can influence its activity. 

The main external factors include:

• market competition
• economic climate
• political and legal environment
• technological achievements
• large-scale global events (for instance, pandemic)

Many specialists note that the global economy is currently facing different challenges that will have their implications. For example, the Covid-19 pandemic and its consequences have considerably slowed down all the economic processes. There is hardly any country that was not affected by the pandemic in this or that way: many enterprises around the world failed to overcome the crisis and had to close. 

Now the companies are in for new ordeals. As the Covid-19 pandemic produced the strongest influence in 2020, the recovery period was scheduled for 2022 and 2023. However, different geopolitical events continue to shake the unstable world economy, leading to a new crisis. Therefore, a period of recession is expected in many countries. 

Making business in a period of crisis requires understanding a number of nuances and taking some actions that will help to keep your company afloat.

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What You Need to Know About Economic Recession

A recession is an economic decline that usually lasts from 2 to 18 months. A recession is as a rule defined as the process when the real gross domestic product indicators decrease for two quarters in succession. However, there are situations that entail a decrease in the GDP level but are not indicative of the crisis. That’s why the US National Bureau of Economic Research (NBER) offers a wider and a more comprehensive definition. 

According to NBER, a crisis implies a considerable reduction of economic activity on a national scale that continues for more than several months. Recession is not the same as depression (which is also an economic crisis in fact). Depression lasts longer and therefore has more serious implications. And while a recession lasts for months, depression may extend over years, and its consequences are felt decades afterward.

Main Signs and Characteristics of Recession

Economists typically rely on several indicators to define whether the economy is in a state of recession:

• considerable decrease in real GDP over at least two quarters
• dropping real income of the population and, as a result, a decline in purchasing power
• trade balance deficit and decline in production capacity
• decreased indicators of wholesale and retail sales of goods
• inflation
• falling stock market
• high unemployment level (6% and more)

Industrial production is one of the main elements that make up the country’s GDP, and this indicator is influenced by consumer demand and interest rates. Consequently, reduced demand means that companies produce fewer goods and services, and the GDP level also falls afterward.

It is the reason why the number of unemployed is growing. During the crisis, companies dismiss employees and stop recruitment as the demand for their products decreases. As a result, the population becomes poorer and the purchasing power in the country drops, which also influences the demand. 

We can make a conclusion that these processes are mutually connected, so the specialists take each factor into consideration. It helps to define the degree of the crisis and predict its approximate duration. 

There are a lot of reasons for recession, including: 

• monetary and credit policy
• stock market crashes
• natural disasters
• pandemic
• military operations
• high interest rates
• financial crises
• different political events, etc.

Company in Crisis: How to Survive

There are grounds to believe that the world is on the verge of a new recession. This is evidenced by GDP levels in many countries, as well as growing inflation. As a rule, crises hit small businesses the hardest. Large corporations have more resources that can support them during the recession. Therefore, the entrepreneurs that have recently registered a company and started developing their business should have a strategy to keep their enterprise afloat in crisis. 

It is important to understand that each company is unique as it has its peculiar features. These include the sphere of activity, the volume of resources, reputation, and management style. Therefore, you will not find one suitable code of practice or plan which would guarantee that the company will overcome the crisis and will receive profit during the economic recession. 

However, there are several techniques that will help you get ready for the crisis and mitigate its negative consequences. And if you are a business owner looking for information on how to survive in a crisis, here are some useful tips from experienced specialists. 

The majority of businessmen whose companies managed to overcome at least one economic crisis recommend the following plan.

Audit the Financial Flows and Make Cash Reserves

Entrepreneurs should first of all take care of the financial stability of their business as this sphere is usually affected first during a crisis. Small or medium-sized business owners need to understand financial reporting and regularly look through the documents. This important step makes it possible to timely find the company’s weak spots that require improvement or reforming to help your business survive.

Besides, companies need cash reserves to stay afloat during crises. And they are usually formed automatically if your financial planning is at a high level and you have a global business strategy. However, you can create a cash reserve even if you don’t have a professional financial advisor.

Look through current invoices and find those that have not been paid. Contact the clients that delay payments and find out whether you can help in any way – for example, help them complete a transaction if they have difficulties with payment systems or available payment methods. Take all possible measures to ensure that the funds get to your account as quickly as possible. 

Read our article to discover early signs of trouble for small businesses.

Add some payment options so that your customers could choose the most suitable one (different banks, the possibility to pay in cryptocurrency, etc.). It will speed up the process of replenishing your cash reserves as the clients will not have any barriers at the payment stage.

Reduction of expenses in the period of crisis will also help you keep your cash reserve intact. Determine the largest items of expenditure, set the priorities, and make the corrections you need to save the funds. On the whole, the main aspects of efficient cash flow management means:

• timely sending of invoices
• bills paid within the terms set
• control of customers that delay payments

You can also work with financial advisors who will help you develop a risk management plan that takes into account the company’s financial standing, its goals and possibilities. Despite the fact that this consultation will cost you some money, the amount of assets you can save by cash flow optimization and diversification in accordance with the recommendations will be much higher.

Reconsider the Staff

A good look at the items of expenditure is likely to reveal that you spend a considerable amount on salaries. You can think of redistributing responsibilities and reconsidering the efficiency of each employee.

It is quite hard for small businesses to have a lot of employees during the crisis, so companies often change the staffing table: they abolish certain positions or reduce the number of people employed. You may have to dismiss some employees and stop recruitment of new ones to optimize business expenses and overcome the crisis. 

You may be interested to find out which types of business are least likely to fail in 2023.

Add Power to your Marketing

The period of crisis is a good time to make up an efficient and competent marketing strategy. Brand promotion and investment in advertisement are important instruments at any stage of business development. However, they become essential in times of crisis: the global purchasing power is reduced, and each client matters. 

Even if you offer a unique product that deserves to be called best on the market, the majority of potential consumers will never find out about it without advertisement. Your new marketing strategy should take into account the current competition level and find ways of communication with customers that would show the best features of your business. 

Digital presence in the Internet is of utmost importance nowadays. Use different methods of free and paid promotion on the web:

• create brand pages in social media to present the company and its products to the potential customers
• make up a content plan that will correspond to the tone of voice selected for your business and its target audience
• launch a regular newsletter for loyal customers
• use advertising tools in social media to launch ads for the narrow target audience
• create a website and promote it to make it appear on first pages of searches

An active page on Facebook, an appealing Instagram profile, and an informative and interesting blog on the website will attract the attention of customers to your business without enormous costs. The Internet users that interact with your content can form the basis for the pool of loyal customers. Engage them in your business strategies, planning marketing campaigns, and development of new products. Share your announcements with them, and take into account their points of view and feedback (positive and negative). 

Lead generation is decisive for business survival, especially during economic crises. And marketing is the best instrument to achieve this goal.

Make a SWOT Analysis of Your Business

You need a good understanding of strengths and weaknesses of your business to effectively manage the company during the crisis. Making a SWOT analysis is a simple but reliable way to find out the main characteristics of your enterprise. 

A SWOT analysis is the list of the company’s advantages and disadvantages, development options, as well as the risks that may affect your business. In fact, the main goal of this analysis is to help the company owner see all the factors that result in business success or failure.

Each category has its characteristics:

• Strengths: the brand advantages and favorable internal factors that contribute to business development and make the company stand out. Rely on these items to act in the times of crisis and make up a global strategy.
• Weaknesses: internal factors or processes that do not work properly. Deal with these by making relevant changes or stopping the processes that work incorrectly. Think about what you can buy in a crisis for future use so that your company would have no shortage of raw materials or supplementary goods required to manufacture your products.
• Opportunities: this item often describes the external factors that have a positive influence on the business prospects. The opportunities should be combined with strengths to achieve the maximum result.
• Threats: unfavorable external factors that may adversely affect your business or even result in damage. Define which spheres of your business activity may be subject to external threats during the crisis and elaborate an action plan that will help minimize the potential damage.

Work on each item to prepare your business for the economic crisis: strengthen the favorable factors and the company’s competitive advantages and prevent or mitigate possible risks.

Discover the main challenges faced by small businesses and ways of overcoming them.

Concentrate on Company Customers

According to the statistics, about 80% of the company’s profit is yielded by 20% of its customers. In times of crisis, it is essential for businesses to concentrate on expanding the loyal customer base and satisfy their needs. People will return and purchase more and more if you offer high-quality products with high-class services. Today’s market is highly competitive, and the factor that distinguishes a successful business from an unsuccessful one is often the level of service provided by the brand or the company.

The company needs to retain the attention of its customers and preserve their trust to survive in a crisis. Therefore, company owners are recommended not to deteriorate product quality to cut on expenses.

Anti-Crisis Tips for Entrepreneurs: Conclusions

It is important to understand that recession is a temporary phenomenon, and the crisis will not last forever. Planning and preparation can help prevent the company from bankruptcy and other negative consequences of the economic downturn. 

The main advantage of small businesses is flexibility. The owners of small and medium businesses can quickly respond to changes and correct their plans to adapt to new market conditions and survive in a crisis. 

Are you planning to start a business abroad? Contact our specialists right now at info@offshore-pro.info to get competent advice. We are ready to provide the required support at all stages of company registration abroad and opening a corporate account with a foreign bank.