How to Recession-Proof Your Business

How to Recession-Proof Your Business

Economic downturns are a natural part of the business cycle, but their impact can be particularly devastating for smaller enterprises.

According to the Federation of Small Businesses, small and medium-sized enterprises (SMEs) make up three-fifths of the employment and around half of the turnover in the UK private sector. Given their significant role, it’s crucial for SMEs to be prepared for economic slowdowns.

This post aims to arm you with practical, actionable steps to recession-proof your business. We’ll cover various strategies to help you recession-proof your business successfully.

Economic Indicators for a Recession or Slowdown

GDP Decline

A decline in Gross Domestic Product (GDP) for two consecutive quarters is a classic sign of a recession.

Monitoring GDP figures from reputable sources like the Office for National Statistics can provide you with valuable insights into the health of the economy.

Rising Unemployment

A sudden spike in unemployment rates can indicate economic trouble. High unemployment often leads to decreased consumer spending, which can have a ripple effect on small businesses.

Inflation and Deflation

Both inflation and deflation are problematic. Inflation erodes purchasing power, making goods and services more expensive for consumers. Deflation, on the other hand, can lead to decreased earnings as businesses are forced to lower prices to attract customers.

Recession-Proofing Business Tips

Diversify Your Revenue Streams

Businesses with diversified revenue streams were 20% more likely to survive economic downturns than those who relied on a single income source (According to a study by the Harvard Business Review).

This is because if one revenue stream starts to falter, others can compensate for the loss, providing a financial cushion that can be invaluable during a recession.

Product Diversification is one example of this, Introduce new products or services that appeal to your existing customer base. For example, if you run a bakery, consider offering cooking classes or selling baking supplies.

Consider expanding your business to different geographical areas to mitigate the risk associated with local economic downturns. This could be as simple as offering delivery services to neighbouring towns or as complex as opening a new branch.

If you’re a brick-and-mortar business, are you able to set up an online store? E-commerce can provide a significant boost in sales and allow you to reach a much wider or even global audience.

Build a Financial Safety Net

Financial stability is the backbone of any successful business, but it becomes even more crucial during economic downturns.

Having a financial safety net can mean the difference between weathering the storm and closing your doors for good.

Businesses should aim to save at least 3-6 months’ worth of operating expenses, and set this Emergency Fund aside for when it’s needed.

Review expenses and identify areas where you can cut back without affecting your core business operations.

Strengthen Customer Relationships

Customer loyalty is a powerful asset, especially when consumer spending is low. A study by Zippia showed that increasing customer retention rates by 5% increases profits by 25% to 95%. Loyal customers are more likely to continue doing business with you, even in tough times, and are more likely to refer others, acting as brand ambassadors.

Setup customer loyalty programs to reward your customers with discounts or freebies. This not only encourages repeat business but also fosters a sense of community around your brand.

Regularly collect customer feedback through surveys or speaking with them. Use this information to improve your products or services and address any issues promptly.


Inflation can be a silent killer for small businesses. When the cost of goods and services rises, so do your operating expenses. Without a strategy to offset these costs, your profit margins could shrink, leaving you vulnerable during a recession.

Implement a flexible pricing strategy that allows you to adjust prices in line with inflation. This could mean introducing tiered pricing or offering package deals that provide value while maintaining profitability.

Lock in contracts with suppliers that offer price stability. This can protect you from sudden increases in the cost of goods.

Consider buying essential supplies in bulk to benefit from discounts and hedge against future price increases.

Invest in Technology

Business management software can be a game-changer in how resilient your business is during economic downturns. Technology can streamline operations, reduce costs, and improve the overall customer experience, making your business more competitive and resilient.

Ways software can help:

Automate repetitive tasks to reduce the wage bill. This could include using software for accounting, inventory management, or customer relationship management (CRM).

Invest in remote work technology to cut down on office expenses. This could mean adopting cloud-based solutions that allow your team to work from anywhere.

Employee Retention and Training

Employees are the lifeblood of any business, and high turnover rates can be a significant drain on resources. Retaining skilled employees not only saves on recruitment and training costs but also maintains the quality of your service or product, which is crucial for customer retention.

Invest in training programs to up-skill your staff. This not only improves their performance but also increases job satisfaction, reducing the likelihood of turnover.

Offer flexible work schedules or remote work options. This can improve employee satisfaction and make your business more attractive to potential hires.

Implement performance-based incentives like bonuses or profit-sharing schemes to motivate your staff.

While no business is completely recession-proof, implementing any of these strategies should increase your chances of surviving during economic downturns.

Remember, the best time to prepare for a recession is when the economy is strong. Don’t wait for the storm to hit; start implementing these key takeaways today to build a resilient, future-proof business.