Economic uncertainty rarely holds any benefit for anybody, and business owners are one of the many groups who tend to feel the heat during times of hardship in the economy.

A recession is part of the economic cycle every country goes through and is defined by two or more successive quarters of negative growth. Most of us will remember the last UK recession, which took place from 2008-2009 and saw firms and individuals having to overcome financial obstacles to survive.

In more recent months, the impact of COVID-19 on the UK has seen new challenges brought, with it being reported last week that the economy had suffered a monthly shrink of 20% – the biggest on record. While it may still be too early to determine the full severity of this, the Chancellor of the Exchequer has already warned of a significant recession which will likely impact most businesses.

The warning signs of a recession mean now is the time for businesses to act to give themselves the best chance of survival should the financial situation continue to deteriorate. We have put together our tips for helping your business survive a recession so that you can plan and weather-proof your company should a storm come along.

• Having good cash reserves in place
• Utilise credit management
• Use government support
• Cut costs – but not quality
• Get tailored advice

Have good cash reserves in place

At any point, it is advantageous for a business to have strong cash reserves, but even more so during a recession. In times of economic strain, your suppliers are more likely to be in a rush for their payment. If you can’t pay them, they may impose restrictions on you, such as freezing your account and halting any future orders. This has a knock-on effect on your productivity, which can make the impact of a recession worse and can cause obstacles even after the recession has passed. However conversely if you are in a position to meet their demand, you can also negotiate better discounts.

Ahead of a recession, it is essential, therefore, to have the cash reserves you need in place and make sure you can meet any outstanding payments. There are many ways to boost cash reserves, ranging from the sale and leaseback of equipment to short-term loans.

One of the cash solutions that may benefit you if you are struggling to pay your supplier is trade finance. With trade finance, a lender pays for the supplies you need from overseas sources so that you can fulfil any existing orders you have in place in the UK. This closes the funding gap between your orders and your suppliers, meaning that your suppliers get paid on time and that you can extend your payment terms without compromising your ability to complete orders.

Similarly, supply chain finance allows you to buy any materials you need from your suppliers, who will be paid by the lender. You then have longer to repay the lender – usually a timeframe of 90 to 120 days. You do not need to have existing orders in place, and your supplier does not need to be based overseas, and the stock purchased is used as collateral for the loan while sat in your warehouse.

Both of these funding solutions allow you to continue to get the stock you need to meet business demand – preventing a worsening of conditions during the recession – while allowing you more flexibility to make the required payments. This means both you and your suppliers benefit, which is crucial when times are hard for everyone.

Utilise credit management

Similar to how your suppliers will be more likely to chase payment during a recession, it is essential that you also focus on recovering any money owed to you during this time. While it is important to be sympathetic to struggling clients in a recession, doing so should not jeopardise your own business situation.

Putting credit management practices in place to make sure that you get paid on time. Credit management can be done by you, or you may appoint someone to do it on your behalf.

Some best practices include having open discussions with your clients to understand their financial situation and any challenges they may have in meeting payment, undertaking credit checks and having processes in place in the case of the late payments. Making sure customers have a clear deadline for payments, and reminding them if they have fallen behind. In extreme cases, you may need to consider freezing accounts for particularly problematic customers or even getting legal advice.

By having credit management processes in place, you can keep cash flowing smoothly into your business and help to ensure your business survival in the face of a recession.

Use government support

When there is an economic downturn, the government usually will put support measures in place to offer businesses a better chance of overcoming the effects. This has been seen during the coronavirus pandemic, with initiatives such as the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme all providing lifelines to UK companies.

The benefit of utilising government-backed loans and support is that they are usually low-interest and specifically designed to help you. This means that they tend to provide more manageable repayments for businesses.

In some cases, the support that the government offers may be in the form of grants or aid that you do not have to repay – such as the Job Retention Scheme. These can be particularly valuable for businesses who are at serious risk in the face of a recession. This means that it is always worth keeping yourself updated with government initiatives during a recession and the other support available to you.

If your business is still struggling from the impact of coronavirus, note that the CBILS and Bounce Back schemes are still open to applicants – so be sure to take advantage while you can.

Cut costs but not quality

If your business is struggling financially, one of the most critical actions you can take is cutting costs. Doing so can ease the burden on your business and boost cash flow.

Take a look at your regular outgoings and identify any costs that are not entirely necessary to your operations. This could be external services you use, recurring orders or any other expenses that you can survive without. Once you have identified these, take the actions to eliminate them. Remember that this does not have to be permanent: you can always re-employ these services later on when the situation allows. If you have fees that you can’t eliminate, consider cheaper alternatives where possible to reduce your costs.

Cutting costs can lead you to make difficult decisions for your business, whether it is having to part ways with a long-term supplier or even make staff members redundant. These decisions are never ideal for anyone, but when your business is on the line, these are crucial to ensuring your survival.

When you are cutting costs, it is essential to make sure you are not compromising the quality of your goods and services. During a recession, you will want to make sure that you are keeping your customer base happy and fulfilling their needs. This will allow you to keep revenue coming in and increase the likelihood of new and repeat sales. With this, you can improve your profit and limit your losses.

Get tailored advice

If your business is struggling during a time of economic strain, or you just want to future-proof your business for any challenges that may come your way, we can assist.

Our team of experts have knowledge across a range of finance types, so we can help you to find the right funding solution for your unique business challenges.

Please call the team today for a free consultation on 0203 327 0567 or email [email protected].