How to Prepare your Business to Survive an Economic Collapse

In 2008, America weathered an economic crisis that spread like wildfire through the international market. People and businesses alike suffered the consequences, before gradually climbing out of the economic abyss.

Experts now predict, another economic downfall is not too far away. The reasons range from the $25 billion estimate for the Mexican border wall, to rising debt in the United States.

Some experts say the decline could start in the next few years; and others, in the next six months. But whenever it does, is your business prepared to weather the collapse, and come out on top?

Here’s what you can do to ensure your answer is a resounding yes.

Become a Lean Organization

Lean organizations are efficient, not stingy. Efficient businesses spend money on assets that help to boost the bottom line, worker satisfaction, and the company’s good image. If a purchase benefits none of these three factors, then it’s not a necessary expense.

Even necessary expenses could use some revision. But after spending months searching around for an internet provider, office space, or technical support, who wants to go through that mess again?

Why, the business owner who wants to save money, of course! It’s never too late or too early to shop around for a better deal. Your current provider may even throw in extra perks or match the lower price you found, just to keep you.

Be careful not to low-ball your providers though, or you’ll quickly fall to the bottom of their priority list. You may save some money, but then lose many of the free perks you once enjoyed.

Cross-Train Workers

The fact is: many businesses don’t consider worker satisfaction a priority until productivity drops, or turnover rates become too high.

Don’t be that business. One of the fundamental principles of good human resource practices is to treat your workers – even the independent contractors – as assets, rather than liabilities.

One great way to do this is to provide training opportunities for workers. If you can’t afford workshops or admissions to professional organizations, don’t worry. Set aside time for your workers to train each other. If they work remotely, then Skype and Team Viewer sessions are effective, too.

So how does this help you save money? If an economic decline leads to downsizing, you don’t have to worry about losing skill sets when you face the difficult decision of letting workers go.

You can use less workers to keep the show on the road, while paying them a little extra to take on additional work.

Invest in Other Businesses

When it comes to business and investments, one strategy that enjoys general consensus is diversification.

Whether you’re manufacturing goods, rolling out services, or investing in stocks and bonds, diversification of income ensures that when a window closes, a door remains open.

To do this, entrepreneurs can invest in other businesses outside of their industry, or complementary to their industry. For instance, a software development company could invest in a smartphone maker, or a telecommunications company.

Diversified investments ensure that even if the business fails, there’s sufficient income to pay off debts and cover business expenses.

When it comes to buying stock, our Senior Business Consultant, Johnson Sainvil, believes it’s a great investment. But he also cautions:

If you know the economy is on the verge of an economic collapse, don’t buy stocks. Wait until the crash happens.

At this point, holders will want to cash out and prices drop drastically. You can then purchase stocks for as cheaply as 90 percent of the original cost.

When the economy recovers – as it inevitably will – the price of the stock will rise again, and you can sell at a profit. This is how I made money from Bank of America stocks, following the 2008 market crash.

Build Company Cash Reserves

One of the biggest reasons companies default on loans and payments is limited cash flow. Sounds simple enough, but a company could be worth millions in assets, but not have enough cash in hand to pay for raw goods, utilities, payroll, and loans.

It’s good to invest, but business owners should also focus on building cash reserves. Calculate what your monthly break-even point is, and try to keep at least three month’s worth of that in reserve. You’ll be glad you did, if the company hits hard times.

In How to Start a Home-Based Public Relations Business, Alexis Chateau PR’s Key Adviser, Randi Minetor, discusses an important rule of thumb when it comes to business and profitability. She writes that 80 percent of your business will come from 20 percent of your customers.

This means an economic crash isn’t necessary to toss a business into financial difficulties. Just imagine what happens when a company unexpectedly loses one of the clients in the 20 percentile range.

Be prepared – especially if your business has high operating costs.

Build & Improve Credit

Even in countries that don’t utilize official credit scores, having a good reputation with lenders provides you with a cushion.

Limited liability companies and corporations, can build their own business credit. However, Sainvil reminds business owners that business credit depends on their personal credit score.

He says:

You must have good personal credit before building business credit. Even though LLCs and corporations are considered separate entities, the business owner acts as a cosigner.

Your social security number is usually included with the company’s EIN at the bank. So if your credit is bad, the bank has no reason to lend the business you own money – and other creditors have no reason to trust you. 

Plan Your Exit Strategy

Even the best businesses can buckle under economic pressure. There are just too many factors a business owner cannot control; such as competition, increased business taxes, and political policies – all of which could drastically affect business practices.

When gracefully pulling out of the market, businesses can protect their credit and reputation by paying their debts and setting some reserves aside for personal expenses, or future investments. For this reason, every company should work out an exit strategy.

So when’s a good time to plan an exit? Around the same time you plan your entry, or shortly afterwards. No one wants to think about the end at the beginning, but the companies who do, are the ones who quickly pick themselves up and turn failures into major successes.

Have you ever weathered a financial or economic crisis as a business owner? How did you recover, and what advice do you have for other entrepreneurs? We look forward to hearing from you in the comments below.

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17 Comments Add yours

  1. Kally says:

    Your post is awesome. Thank you for sharing this with us.

    Liked by 1 person

  2. jayfindling says:

    This a great article.

    Liked by 1 person

    1. Thank you. What did you like about it?

      Like

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