4 Aug 2022

How to Protect Your Startup Amid Economic Chaos?

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Surbhi Bhatia

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How to Protect Your Startup

Stagnation can be complicated and unpredictable! Sure, the financial media is quite popular for taking a dig at when the next recession will begin; however, we can not always expect the timeline to be true. 

Imagine your business doing extremely well when suddenly the recession period turns your world upside down. Isn’t it significant to be prepared in advance? 

As said, “Expect the best, prepare for the worst,” is a perfect saying for businesses trying to protect the empire they’ve built over the years with their sweat and blood. 

Not to forget mentioning, startups or small businesses become the real victim of challenging economic times. Unfortunately, there’s no universal rulebook that could define the tips and tricks straight away, since every business carries its own rewards and risks. However, a few general strategies can save the ship from sinking. 

We know you can’t wait to get your hands on the pixy dust we’re about to share. So, let’s dive deep into the pool of information without further delay! Shall we? 

Tips for Small Businesses to Bail Out the Economic Chaos 

Tips for Small Businesses

1. Plan for the Long Term 

 It goes without saying that anyone would go after solving the most visible issues first. While many would say it’s reasonable, stop and step back for a bit! 

Did you think about its impact in the long run? No, right?

While the solutions that are in front of you seem exceptionally perfect to work on the economic crisis, it is equally essential to understand the benefit it has to offer in the near future. It is time to understand the business’s ecosystem and determine how its strengths and weaknesses will play a role. 

In a situation of economic crisis, study how your products or services fit into the marketplace currently, and how the stagnation has impacted your sales. Then, determine whether your business model is able to adapt to the dynamic environment and figure out the best alternatives that’ll save you from the recurring situation in the future. 

2. Staff Inventory 

Undoubtedly, payroll is one of the primary costs a small business has to manage. Thus, every startup would expect the money to go to the right place in exchange for efficiency and higher productivity. 

A company must conduct regular reviews on the staff to ensure that a team with an accurate skillset is put together. Notably, a focus on hiring inexpensive employees is one of the worst decisions a startup could make since an inexperienced individual might hamper the overall productivity of the firm. 

3. Easy Access to Cash

It is vital for startups or small businesses to make sure that the organization has access to cash, especially during times of crisis. One of the smartest moves is to understand the requirements to obtain a loan from the bank and open a line of credit for short-term cash-flow issues. 

Remember, a business must not rely on loans itself. Instead, it should have other back-up options and potential sources of capital, including savings, stock holdings, etc. 

4. Watch Out for Smaller Things  

Earlier, we mentioned that looking at the bigger picture is mandatory! However, it doesn’t mean that you’ll ignore minor bumps on your way. On the contrary, smaller things that might have adverse consequences are also harmful and might put a massive dent in the company’s reputation.

For instance, a mobile app startup might overlook developing an MVP product; however, it may lead to a loss of millions or billions in the later stage.  

5. Never Compromise with the Quality 

Have you ever come across a restaurant business or, say, a pizzeria that initially offered delicious pizza’s; however, their quality has now decreased?

It is probably because the restaurant is experiencing a dry spell, and the owner is now trying to earn profits by using cheap ingredients. Sure, the pizzeria may earn profits for some time; however, the strategy is most likely to backfire when customers start realizing the deteriorating quality of food. 

MORAL

6. Widen Your Customer Base  

Indeed, an economic crisis can occur anytime, and any business unprepared to tackle the situation will have to face repercussions. Many times, a business might prioritize bagging a few but big clients, which might misfire upon the loss of clients. Therefore, it is essential to not only have big clients, but a large customer base for protection. 

7. Know Your Market 

A businessman who has been a part of the industry for quite a while will always have an idea about the downturn. Therefore, if you’re one of them, it is time for you to use your knowledge and prepare for the recession in advance. 

Sure, new players in the market might lack knowledge and experience; however, it is vital to learn from the situation and work things out for the future! 

The Influence of Recession on Businesses

The effects of a recession will vary depending on the size of a business. For instance, while a small company might face cash flow issues due to payment delays from the clients, a Fortune 500 company might have to terminate employment to save money. 

Undoubtedly, it is of utmost importance to learn how a recession will impact your business to make sure that it does not become a casualty in the next one. 

Do you agree? 

Recession on Businesses

1. Credit Impairment and Bankruptcy 

One of the foremost effects on businesses is the restricted credit condition, since lenders become selective of their choices considering the risks. Notably, an economic crisis may bloat a business’s finance as liquidity issues impact the supply chain. Therefore, there’s also a delay in payments from the customer’s side, which may force the business to slow down its mechanism. 

2. Declined Sales 

During a recession, nothing is worse than declined sales for a business! While manufacturing and energy industries tend to experience declines, technology suppliers or a mobile app development company may face disproportionate revenue. 

As the demand declines, the expected Return on Investment also decreases, due to which cost cutting has to be done to maintain the budget. 

3. Perk Reductions and Layoffs 

Due to the reduced demand that businesses face, the most common step taken by a company is to undertake layoffs for cost cutting. Many times, workers accept the payment even if they get half of what was initially given, only to save their jobs. 

The Bottom Line

Recessions are a periodic phenomenon that interrupts economic growth to a large extent. Therefore, businesses have to make adjustments according to the downturn to improve the situation and keep themselves from higher losses. 

Being aware of what’s coming next or preparing for it can save your hardship going down the drain! 

What do you think?

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