How to recession proof your business

Home improvement projects increased across the UK during the COVID pandemic in 2020 and 2021. This was largely because homeowners couldn’t book holidays and needed to adapt to new home working patterns.

Since that time, it has been a different story for UK businesses. There has been cost of living rises, material shortages, price hikes, and now a potential recession on the horizon. It’s a tough time for everyone, tradespeople included.

It’s time for tradespeople such as you to explore the current climate and get to grips with how to prepare your business for a recession.

How does recession affect businesses

A recession significantly impacts businesses across various industries. They introduce a challenging economic landscape that can lead to several adverse consequences.

One of the most significant effects is a decline in consumer spending as individuals become more cautious with their finances. Reduced consumer demand, in turn, affects businesses’ revenue and profitability.

As economic uncertainty prevails, businesses may delay or cancel investment projects, impacting industries such as construction and manufacturing.

Small businesses, in particular, may face heightened challenges, often lacking the financial resources to weather prolonged economic downturns.

Want to get ahead of the game? Why not plan for possible recession in your business plan.

What businesses do well in a recession?

During a recession, businesses that tend to do well typically demonstrate adaptability, resilience, and a keen understanding of shifting market dynamics.

Essential goods and services providers, like healthcare and utilities, tend to fare better as these needs persist despite economic downturns.

Businesses offering cost-effective alternatives or value-driven products also often thrive, as consumers become more budget-conscious.

Meanwhile, industries related to repair and maintenance services may experience increased demand as consumers prioritise extending the life of existing assets.

How to prepare your business for a recession?

Preparing a construction business for a recession involves strategic planning, financial foresight, and the ability to adapt. Here are some key steps for how to prepare your business for a recession:

• Financial assessment: conduct a comprehensive financial analysis to identify areas of vulnerability. Review cash flow, assess the adequacy of working capital, evaluate debt levels, and explore opportunities for refinancing.
• Cost management: implement cost-cutting measures without compromising core operations. Identify non-essential expenses that can be temporarily trimmed
• Diversification: diversify your product or service offerings to cater to a broader market. Explore new revenue streams and assess their viability
• Customer retention & acquisition: strengthen relationships with existing customers and explore innovative marketing strategies to attract new customers
• Workforce optimisation: assess staffing levels and optimise workforce efficiency. For example, you could invest in training to enhance employee skills and productivity
• Strategic planning: develop a recession-specific business strategy, including scenario planning and identifying opportunities that might arise during an economic downturn
• Supply chain resilience: diversify your suppliers to minimise the impact of Assess the vulnerability of your supply chain and implement contingency plans
• Monitor & adapt: regularly monitor economic indicators and adjust strategies accordingly. Stay informed about industry trends and adjust business models as needed

How to proof your business for recession

From cultivating financial resilience to fostering operation flexibility, check out our top tips below on how to proof your business for recession.

The importance of budget management

Good budget management is essential for a construction company to stay profitable during a recession.

The first thing to do is conduct a full business audit. This will give you a comprehensive view of your income, expenditure, profits, losses, material prices, and staff wages.

Once you understand the financial situation of your business, you can start implementing some budgeting measures to recession-proof your business.

These may include:

• Using a budget planner to establish accurate cash flow tracking
• Investing in new areas (green technology, renewable energy etc.)
• Negotiating supplier prices or finding new suppliers
• Utilising existing stock (selling or using old materials)
• Working more locally to reduce fuel costs
• Implementing tighter invoicing procedures – typically, in a recession, customers are late on payments

As a last resort, you may need to reduce your workforce or cut staff hours. But this should be viewed as a temporary measure. After all, the most successful businesses during a recession are often those that invest in their employees.

Adopting core working hours could actually boost staff morale, allowing positive changes in overall work-life balance.

Growing your team in a recession

Another way to recession-proof your business is by investing in your employees. Although this may seem to contradict the idea of reducing business costs, it is actually a clever business move.

It’s important to remember that your employees are your biggest and most valuable business asset. They may have worked for you for years and have valuable experience, skills, and qualifications, enabling your company to thrive.

When a recession hits, your employees will understandably be concerned about their job security.

• As a business owner, you must reassure them that their job is safe
• Be as open and honest as possible with your staff
• Talk to them about your plans for the future and get them involved
• Remember, they know your business and will often be able to provide valuable insights that you may have overlooked

Reassuring your team during a recession is a great way to boost positivity and enhance productivity.

With the correct planning, you can also use a recession as a time to grow your business. Job markets will fluctuate leading to more opportunities and new staff looking for work.

Motivating your new team

Motivating new team members during a recession can be tricky. News of a recession will be widely reported as having a negative impact on society.

Combat this negative view by offering your employees the opportunity to develop and progress in their careers.

Existing employees with years of experience can help to train new starters and apprentices. This will help motivate both experienced workers and ‘newbies’, as both will feel they’re a valued part of the team.

Look at investing in training courses; some of these may be government-subsidised, which is a win-win for everyone involved. But don’t just train your new starters.

Ask your existing employees what they feel they need to improve their work. This can easily translate into offering your customers a better experience and, in turn, boosting your company’s credentials.

Offering your customers something unique

The construction industry is highly competitive, for example. Whether you run a building company or a plumbing firm, rivals will always compete for work in your area.

During a recession, it’s more important than ever to offer your customers something that your competitors don’t. You need to stand out from the crowd; to do this, you may need to think outside the box.

Some unique ideas to differentiate and recession-proof your business include:

• Streamline your services
• Always talk to your customers
• Offer incentives (e.g. Buy four windows and get a patio door at half price)
• Embrace digital technology
• Provide comprehensive guarantees

There are many ways to make your business stand out from your competitors during a recession. The best ideas almost always involve understanding customer expectations.

Planning for the short-term

During times of economic uncertainty, it can be difficult to plan for the long term. Short-term projects are an excellent choice during times of recession when the economic landscape is continually changing.

Taking on more short-term projects gives you more control.

They’re less vulnerable to market changes and are not impacted by supply chain problems, rising costs, and unexpected delays.

When you plan your business just a few months in advance, it’s far easier to accurately manage your finances.

Your workers may also be more motivated because of shorter schedules. This, in turn, will lead to happier customers who will give positive feedback and help to promote your business.

Using technology to improve customer satisfaction

Technology should never be viewed as an alternative to human interaction. It can, however, be a great advantage to a business during a recession. It can also provide customers with a better experience working with your company.

As a business owner, you can use the latest technology to improve customer satisfaction. This may involve:

• Instant online quotes
• Online reviews
• A user-friendly website
• Interactive chatbots

Becoming a Checkatrade member is also a great way to attract new customers and reassure existing ones.