Who would have imagined at this time last year that we’d be up against the record numbers of hardships? After all, before COVID, the United States was enjoying the longest economic expansion in recorded history. Beginning in 2009, after the "Great Recession," and lasting through February of 2020, the country experienced 128 months of growth according to the National Bureau of Economic Research.
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This was seconded only to the period from 1991 through 2001, which capped off at 120 months of economic expansion. Once the pandemic struck, all bets were off.
In the U.S. unemployment has skyrocketed, with just over 6 million Americans filing for unemployment in February and more than 20 million filings in May.
Instead of expansion, the entire world was plunged into a recession expected to be the worst since World War II. The World Bank anticipates that the global economy will decline by more than 5 percent in 2020 as disruption continues across all industries. In the U.S. unemployment has skyrocketed, with just over 6 million Americans filing for unemployment in February and more than 20 million filings in May. The unemployment rate of 3.8 percent to 13 percent during the same period — a rate substantially higher than the sum of the two years the Great Recession lasted, during which the highest unemployment rate hit 10.6 percent.
Tens of millions are struggling without work. Families are unsure if they’ll be able to pay their mortgages and rent. Children are going to bed hungry as many Americans are having a tough time getting enough food on the table. Results of the Census Bureau Household Pulse Survey for the period of October 28 through November 9 estimates that 16 percent of households with children and 9 percent of childless households didn't have enough food for the week.
Nobody could have seen this coming. We often can’t predict recessions, but we can learn hard-won, valuable lessons from them. One of the greatest bits of wisdom any of us can take away from economic downturns is this: You can survive it. Even better, you can thrive. The key is to start planning for the next recession now. These X habits can help get your business future-ready.
Build Up an Emergency Fund
Having cash at the ready is a must, both in your personal life and in business. It’s a solid foundation to get you through difficult times and unexpected circumstances. If you have to scale back because demand has shifted, pivot your operations to flow with changes to the supply chain or shut down for a few weeks or months like so many businesses have during COVID — having an emergency fund will preserve your cash flow and give you the safety net you need during times of trouble. Need a few tips for building your emergency fund?
Put 10 to 30 percent of your annualized revenue in the bank to give you three to six months’ worth of cushioning during an emergency.
Automate your savings plan so that a set amount of money gets transferred into a separate emergency account on a weekly or monthly basis to build that cushion seamlessly.
Reevaluate your budget and operating expenses on a regular basis to better understand how growth and/or contraction impact the reserve you’re building. This also gives you an opportunity to evaluate missed savings opportunities.
Create a Blueprint for Success
Sure, you could just weather the storm. But what if that storm brought you opportunities that might not come along otherwise? That’s the beauty of preparing now for the next recession. It allows you to act instead of spinning your wheels while reacting. It positions you so that you’ll be able to act quickly and jump on favorable circumstances that might present themselves because you’ll be spending less time trying to figure out how you’ll stay afloat — you’ll already have a basic blueprint to carry you through.
To make your plan, first, consider some of the worst-case scenarios. Figure out how different variables could impact your business and brainstorm solutions. For example, what if you lost your largest customer, which would decrease your revenue by 30 percent? Clarify how that would affect the business and develop detailed action plans for moving forward.
Keep an Eye on Opportunities
From 2008 through 2010, the Great Recession forced approximately 1.8 million small businesses to close their doors permanently. Since COVID, nearly 100,000 small businesses that shut down temporarily have since gone out of business forever. That leaves lots of assets out there waiting for entrepreneurs who were prepared for the recession to snatch them up. The opportunities could be anything from acquiring entire companies to buying assets to investing in property to gaining top talent.
Build Agility Into Everything You Do
No matter what comes along, the ability to respond and pivot according to changing circumstances will keep you on the road to success. Adaptability, flexibility, agility — no matter what you call it, it's the key to sustaining your business through just about anything. Consider the small businesses that found ways to digitize their services and products during the pandemic, for example. Not only did this give them a way to keep the revenue flowing, but it also opened up a new way for them to continue doing business on a going forth basis.
Planning for the unexpected and building your emergency fund is the cornerstone for building agility into your business. Flexibility in budgeting is also helpful because it lets you quickly respond to changing conditions. Other ways to build a strong, more agile business include:
Building teams that include talent across multiple disciplines. For example, the team might include customer service experts, product developers, and technology pros.
Encouraging autonomy in your team. Establish your chain of command and empower your team to make decisions accordingly.
Adopting a business model that includes continual innovation. Not only will it keep your customers happy during good times, but it also keeps your skills sharp when you need to quickly change things up to overcome obstacles.