How Colorado business owners can develop and implement recession-proof strategies.
As we near the halfway point of 2023, the economic downturn many expected to characterize Colorado's economy this year has not materialized. Despite the uncertainty and rising interest rates, economic indicators appear to point to market resilience. However, there are natural cycles of economic ups and downs that all business owners have to face from time to time. As we approach the second half of the year, it's a good time to consider your position and ensure you have intentional strategies in place to avoid “survival mode” when a recession appears.
Balancing various economic variables in a way that protects profits and cash flow is one of the biggest challenges business owners must grapple with, especially during economic downturns. The most successful business leaders keep their finger on the pulse of business cycles and have short- and long-term plans in place to respond to changing market conditions.
Read: 5 ways Colorado small business owners can survive inflation
Here are four tips to help Colorado business owners prepare for a recession.
Proactively manage production, sales, and employees
These three functions of a business, more than any other, provide a stable foundation for a business during economic downturns or sustained declines in demand. By staying ahead of the curve in these areas, business owners can create a cushion of protection from the market and avoid unwarranted reactions.
Optimize your finance department and focus on data-driven forecasting. With better data, executives can have an advantage in predicting economic downturns. This information gives you more time to prepare and make the right decisions. in front We are feeling the full effects of the recession.
Human resources is also a key area that determines a company's ability to survive an economic downturn. Set up your system to give you flexibility in managing your employees. By creating a consistently loyal workforce, you avoid costly hiring and firing cycles caused by economic fluctuations. Invest in human resources development. Look for opportunities to decentralize your management structure to increase decision-making autonomy. An inclusive culture always builds resilience, even in difficult times.
We strive to ensure that our products and services create essential value for our customers.
Companies that develop products or provide services that people can't live without are less likely to see significant changes in demand, and can therefore protect their profits during a recession. When the economy causes Coloradans to look for ways to save more, we naturally start evaluating our needs and wants. Business owners who position their products and services firmly in the “needs” category will fare better because recessions have little effect on the value of what consumers consider essential.
By paying close attention to consumer trends and reactions to market conditions, business leaders can adapt their products and services to create more intrinsic value. We have seen many examples of this phenomenon during the COVID-19 pandemic. Companies have shifted their business models to stay relevant and respond to changing needs. Restaurants prioritized takeout programs amid restrictions on in-person dining. Retailers have developed curbside pickup options. The gym focuses on creating on-demand programs for home fitness. Although these industries likely experienced decline, companies survived by adapting their service offerings to maintain value.
Even if sales decline, as long as your product or service provides essential utility to your customers, you can avoid hitting rock bottom.
Diversification of revenue sources
Business cycles tend to ebb and flow differently depending on the industry. Macroeconomic trends tend to have a dynamic impact on different industries, so the threat of recession does not necessarily mean doom and gloom for all industries. This is an extremely rare economic event that poses challenges for businesses across all industries.
What's more common is that what is a recession for some people is a boom cycle for others. By diversifying your business and generating multiple and diverse revenue streams, you can minimize the impact of an economic slowdown.
Read: What is the safest industry to start your first business in 2023?
Strengthen your capital management strategy
The old adage that cash is king still holds true today.It's no surprise that companies with secure access to capital are best positioned to survive and It thrives even in economic downturns.
Analyze working capital to identify opportunities for improvement. Can you reduce the amount of cash tied up in inventory by leveraging better data that can predict demand and order products more efficiently? Another tactic to improve working capital is to talk with vendors to identify opportunities for better terms. Finally, careful credit procedures with customers may help you convert sales into cash more quickly.
As in other areas of business, relationships are important when it comes to capital. Building a strong relationship with your lender is essential. Communicate transparently, build a partnership with the person you're borrowing money from, and make sure you're both prepared to weather the economic storm.
Acquisitions tend to increase during economic downturns, so if you have a strong financial foundation with capital that is accessible during a downturn, this could be a great time to take advantage of growth opportunities. Many businesses need help and support during difficult times. For example, the early success of our business at Kodiak Building Partners was largely established as a result of his 2008 recession and housing crisis. Many of our original operating partners signed on with Kodiak as a holding company during the down period to take advantage of the financial strength the model provided. With the right capital management strategy, your business is more likely to succeed during a recession.
Read: Recession is coming — how to stick to your financial plan
Surviving economic downturns is an important skill for business leaders. No one can predict with 100% certainty what Colorado's economy will do in the next cycle, but business owners looking to put some protection in place with a well-planned strategy can Regardless of when the headwinds change, we will be better prepared to withstand an economic downturn.
Steve Swinney is the co-founder and CEO of. Kodiak Building Partner, one of Colorado's largest privately owned companies. His experience as a financial executive spans over 20 years, with expertise in mergers and acquisitions, private equity-backed ventures, financial analysis, investor relations, and overall business strategy.
