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How to Maintain Your Business Through a Recession

Updated on October 22, 2012
Borders Book Store Going out of Business
Borders Book Store Going out of Business | Source

It takes long hours and a lot of hard work to manage your business. You have to keep focused on maintaining your current customer base, finding new customers, and running a profit, while dealing with the day-to-day business activities. During times of recession, running a business becomes that much more difficult. Managers must work on both the revenue side and the expense side in order to survive the recession. Let us look at what options are available to management.

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Growing Your Business - Revenue

Growing your business by increasing revenue is always important, but during bad economic times it is critical. You would be surprised at how a small increase in sales volume along with work on the expense side can dramatically improve things.

Develop New Markets for Your Products or Services

Recession proof companies offer their products and services in a variety of different markets allowing them to survive if one or more of their markets are down. This is something that a business should always be working on. The manufacturing company that I work for offers products in the automotive, appliance, and electrical industries. The sales and R&D department are continually working on new applications for our products.

Offer Your Top Customers Rebates

One way to increase sales is to offer your best customers rebates if they hit a predetermined amount of spending. Be sure to set the target high enough to make the customer stretch to hit the target and make the terms of the rebate clear to all parties. It is important to put this in writing and have the customer sign off on it. Another thing to consider when offering a rebate is to be sure that the profit that is generated by the rebate is more than the rebate amount that you are offering your customer in return. Depending on your market position, a good way to implement this is with a price increase. Offer the rebate to offset some of the cost. I would not suggest raising prices if it is easy for your customer to find another supplier. At the company that I work at, we use customer rebates to secure new product applications from our existing customers.

Additioanl Advice on Managing your Business in a Recession

Cost Cutting

Increasing sales is one way to keep your business going in a recession, but the fastest way to add to the bottom line is to cut costs because the full amount of the savings is all profit. A great way to approach cost cutting is to form several teams and assign each one a specific expense area to focus on finding the cheapest way of doing things that does not affect the quality of your product or service. Cost cutting team examples include raw materials, manufacturing processes, services, freight, purchasing, and supplies. The teams should spend time trying to identify potential projects and the viability of each. It is important to think outside of the box. The goal as you start out is to go after all of the low hanging fruit first to get the momentum going. At the manufacturing company that I work for, we are in year five of cost cutting. We have successfully removed over six million dollars in cost, which falls right to the bottom line.

Raw Material / Direct Costs

It is vital for a business to continually find ways to reduce their raw material and/or direct costs. This is especially true in times of recession because the cost savings will help to offset any loss of revenue. One of the best places to start is to make sure that you have multiples sources for all of your raw materials or direct costs. The advantage of doing this is that you can play one supplier off of the others. Another thing to look at is to try and find cheaper, alternative raw materials that can be substituted in without affecting the quality of your product. At the manufacturing company that I work for we were able to cut our raw material costs using both of these methods. We took our raw material percent from 63% to 50% in a couple of years.

Labor

Another thing to look at during a recession are your labor costs. The best thing to do during good times is to invest in your business. What I mean by that is to put money into automating or simplifying your processes to reduce your labor costs. Also, invest in making your business a safer place to work because lowering your worker compensation costs will save lots of money. The other place to look during a recession is laying people off, which I believe should be the last resort. If you have to lay people off, do as much as you can to help them find new opportunities and give them a fair severance package.

Utilities

Depending on your business, utility costs can be very expensive especially if you are in manufacturing. Even a small rate savings can translate into a good amount of actual savings because of the amount of energy that manufacturing businesses consume. In many states, utility competition is available that will allow you to lock in utility unit rates over a specified period such as one or two years.

Supplies

Supplies encompass many different areas that could be broken out separately, but the principles are all the same. The first place to start is to review what you are buying that you either do not need or can do without. Second, bring in several different supplies for each category and have them quote their prices for individual products and for the entire category. The great thing about doing this is that during times of recession, many suppliers will be very aggressive to obtain new business.

Running a business in a recession is hard work during good times and much harder during bad times. It is important to do everything you can to increase sales while cutting as much cost out of your business that is possible. My advice to you is not to wait until the bad times come, start today trying to increase your market share and cutting costs.

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    • lesliebyars profile image

      Buster Johnson 4 years ago from Alabama

      Great hub, very informative.