It’s a known fact that you must prepare your business for economic uncertainty, or rather you need to be prepared for the worst.
The recent past has shown that global events can occur that force companies to close their doors for extended periods, while supply chain disruptions prevent them from operating as they used to.
Today, there continue to be many threats to businesses of all sizes, which is why a resilient business is so important. It will allow a business to respond in a period of crisis or change.
Common risks during economic downturns include:
- Financial risks: Less customer spending, higher borrowing costs, supply chain disruptions, and changing exchange rates.
- Operational risks: Market instability resulting in loss of talent, technological failures, and decreased production efficiency.
- Market risks: Changing consumer behavior, more competition, and regulatory changes.
External factors can also impact businesses, including geopolitical conflicts, natural disasters, the development of new technologies, and political changes.
Below are steps a business can take to remain resilient in times of economic uncertainty.
Implement A Risk Management And Resilience Plan
Larger businesses should consider creating a task force to deal with potential risks. The team should consist of employees from different areas of the company, and develop a plan that can be used to mitigate risk. This risk management and resilience plan can comprise of the following elements:
- Risk assessment: Identify potential risks and the likelihood and impact of each risk occurring. Risks should be prioritized based on the severity of their impacts.
- Mitigation strategies: These strategies should be proactive to prevent or minimize potential risks and their impacts. This can include supplier diversity, cash reserves, and expanding sales to reach more customers. Mitigation should also include investing in technology to improve efficiency and spot vulnerabilities in business operations.
- Business continuity: Create and test procedures to ensure the most essential functions of the business can continue even if there are disruptions. Backup systems should be developed, as well as methods to recover data that may be lost.
- Communication: Create communication methods with stakeholders and provide consistent updates on the company’s status and potential risks, and disruptions. Concerns should be proactively addressed so stakeholder expectations can be managed.
Preparing such safety measures in advance is a must for every business owner who wants to insulate their operations from ongoing market risks.
Diversify Revenue And Assets
Businesses should consider diversifying their streams of income and assets, as well. One popular diversification strategy is incorporating digital currencies into business models. Some companies are broadening their revenue streams by accepting cryptocurrency payments, which opens them up to a new market of consumers who prefer to conduct business with these digital currencies.
Other businesses are allocating a small portion of their funds to digital assets to hedge against inflation and currency fluctuations. Buying both established coins, such as Bitcoin and Ether, together with new coins, is a clever way to diversify the portfolio and alleviate potential investment risks. Although this approach requires risk assessment, analyzing a presale crypto list and staying on top of regulatory changes in the crypto space can provide a layer of financial flexibility during uncertain economic periods.
Allow Flexible Work
Remote working has been around for a few years now, and although most workers have returned to their offices after doors closed during the pandemic, many have stayed working from home or opted for a hybrid work model.
Being able to adapt to a flexible work arrangement may be in the best interest of many businesses, and it shows that companies can function with the right technologies in place. Local or global disruptions may once again force businesses to close their doors, and being resilient means being able to instantly switch to a remote work model.
An added bonus of a flexible work policy is that it will attract more talent and also help to retain employees.
Improve IT Infrastructure
Businesses should be prepared to face cybersecurity threats as these become more prevalent. Preventing a cyber attack is not always possible, but there should be systems in place to prepare and minimize the impact. Companies should develop high-tech and low-tech means to protect themselves from cybercrime.
IT employees should be trained in the latest methods to protect the company, and also how to spot potential breaches. All employees should understand the most common scams and how to avoid and report them.
Strengthen The Supply Chain
Recent global conflicts and economic shifts highlighted how important it is to have a diverse supply chain. When factories close in one region, businesses can’t get the parts they need. Port backlogs can cause products to be stuck in customs. Even the Ever Given cargo ship stuck in the Suez Canal impacted global supply chains for many months.
A resilient business is one that has a backup plan if one supplier is unable to deliver goods as promised, on a local, national, and international scale. If there is a local natural disaster that impacts the supply chain, businesses should be able to source materials from a different region.
Expand Offerings
Even with a diversified supply chain, there will be times during economic uncertainty when a business will not be able to get the materials it requires to operate. To prevent being impacted negatively during these situations, companies should diversify their product line. This will enable them to continue to operate, attract a new market, and offer new products or services to existing customers.
For example, consider a family-run bakery. The cost of eggs in the US increased by 70%, which would negatively impact this business’s expenses. The staff at the bakery decides to offer more vegan desserts and baked goods that don’t use any eggs. This opens them up to a new market, too, giving vegan customers more options. Almost all companies will have “eggs” in their supply chain or product line that are increasing in costs and impacting the bottom line.
Maintain Backup Systems
To test how resilient a business is, owners or managers should strip the business back to just the most important operations, then develop infrastructure to keep these going. If something happens that disrupts the company, the backup systems should kick in and keep the business afloat for a short period until the disruption passes.
For example, a natural disaster or increased tariffs can impact national electricity generation. Companies with backup generators or solar panels will be able to keep operating (at a basic level) during these times.
Backup systems should be regularly maintained and tested to ensure they’re not outdated or broken when the time comes to use them.
Focus On Customers
Focusing on the existing customer base is vital during economic uncertainty. Customers tend to become more reserved with their spending since they’re likely also feeling the pinch of inflation and the recession. Businesses need to provide exceptional service to retain customers.
Employees should be trained to spot and address the changing needs of customers during this time. Not only will it instill trust in the business, but also potentially identify new revenue opportunities.
This can be done by:
- Listen to customer feedback and address any concerns as soon as possible. This will ensure they feel valued.
- Reward loyal customers with exclusive offers, personalized messages, or small discounts.
- Keep customers informed about any new offers or business changes and how they can benefit.
Final Thoughts
Economic uncertainty can induce panic; however, it provides businesses with the opportunity to strengthen their operations and become more resilient. By focusing on the key element above, companies can be more prepared for downturns, geopolitical challenges, and regulatory changes in the future.
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