How a Recession Can Help Your Business Become Stronger
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A recession can invoke many fears, as you worry about not only your own finances but those of your company as well. But if you take steps to prepare ahead of time, you will not only weather the storm but also come out of it financially stronger and more successful.
What is a Recession?
A recession is a period of significant economic decline during which trade and industrial activity are reduced, after a fall in two or more consecutive quarters of the Gross Domestic Product (GDP), which is the total goods produced and services provided in a country during one year. A recession typically begins just after the economy reaches a peak of activity and ends as the economy reaches its trough (lowest point).
There are certain terms that are commonly used when talking about a recession. Here are a few key phrases to know:
The business cycle is the natural rise and fall of economic growth that occurs over time.
Inflation is the rate of increase in prices over a given period of time. An acceptable rate of inflation for most analysts is generally 2%. It was at 8.6% in May 2022, compared to 7% in 2021.
Throughout history, there have been a number of recessions of varying impacts. Many analysts are predicting there will be one in 2022. But the factors leading up to it will be quite different from that of past recessions.
Causes of Past Recessions (and why 2022 is different)
According to National Bureau of Economic Research there have been 19 recessions in the United States. Seven of those were from 1854 to 1945. From 1854 to 1945, the average recession lasted 21.6 months. There were 12 recessions from 1945 to 2020. Recessions during 1945 to 2009 lasted on average 11 months.
Significant recessions in the last 100 years include:
- Great Depression – 1929-1941
This was the worst economic downturn in the history of the industrialized world. The stock market crash in 1929 led to regional banking panics in 1930-1931. At its lowest point in 1933, 15 million Americans were unemployed and nearly half the country’s banks had failed. The Great Depression extended globally, causing international financial crises from 1931-1933.
- Great Inflation – 1965-1982
The country faced double digit inflation, raising interest rates and surging energy costs and oil crises. The halt of the Bretton Woods System – the exchange of dollars for gold by foreign central banks – added to the woes.
- Great Recession – 2007-2009
Losses on mortgage-related financial assets began to cause strains in global financial markets. There was a decline in the housing market. The subprime mortgage crisis extended mortage credit to high-risk borrowers who previously would not have qualified.
- COVID-19 Recession – March-April 2020
A global pandemic resulted in lockdowns throughout the world causing great havoc. 31.3 million people were not able to work due to their employers being shut down. Food insecurity increased for millions of Americans and many renters fell behind on paying rent.
Why 2022 Is Different:
Unlike in 2008, there are strict mortgage lending regulations in place to ensure that the subprime mortgage crisis does not happen again. There is still a high demand for housing, but with less inventory than in 2008. Less houses were built (5.8 million) over the last decade compared to 27.1 million built in 2000-2010.
Unemployment is low (3.6%) especially compared to 1933 (24.9%), 1982 (10.8%), 2009 (9.9%), 1975 (8.2%), and 2020 (6.7%). Although the current unemployment rate is low, companies are still struggling to fill 11.5 million vacancies.
Inflation is rising (8.6% as of June 2022) but is still lower than 1980 (14.4%), 1947 (17.6%) and 1974 and 1979 (both 10.9%).
How You Can Use a Recession to Improve Your Team
A recession is not a reason to panic. In fact, it can be a positive thing.
As Brian Buffini says, “A recession operates the way a pressure cooker does. When the temperature of the market or economy gets too hot, a recession often takes the excess steam off. Although there are some difficulties and challenges with a recession, often a lot of good comes from one.”
Knowing that a recession is very likely, take the time to assess your business practices, evaluate what has worked and identify weaknesses. Preparing now will help you weather the storm and ensure your company is stronger and more financially stable after it ends.
Customer Service is Key
“A recession will be a wakeup call for sloppy businesses,” Buffini stresses.
We have all had frustrating experiences with subpar customer service and afterwards vowed never to use them again. Just as importantly, we will never refer them to anyone we know. And while a business may have more than enough work now, it will not always be that way.
“There’s a lot of money chasing too few services,” Buffini says. “This too shall pass. That’s the beauty of a recession.“
The first thing you must do is ensure that everyone in your company – from the top down to the most junior member – buys into the mantra of superior customer service. This is nonnegotiable. One weak link can destroy customer goodwill and ultimately, profitability.
Train your entire staff in the basics. Things such as looking someone in the eye, smiling and thanking them for their business seem simple and like common sense. But the fact is, not everyone does that. And being treated as a guest, instead of a transaction, can make a huge difference in how a customer feels. It inspires loyalty. Happy customers will use you again and refer you to others. Unhappy customers will post bad reviews online.
Improving Your Services
Look at your business with a fresh set of eyes. Where are the deficiencies? What can be improved? Just because something has always been done one way doesn’t mean it must always be done that way. As Buffini says, “The world is changing. You need to build for the future.”
Recession Proof Your Money
Without a doubt, the past two years have been challenging. Consumers are eager to experience events and travel post-pandemic. And while we all should take the opportunity to do things that fulfill us, it is wise to also take measure of our finances so we will be best prepared for challenging days ahead.
Here are three simple but powerful recession strategies.
Review your personal and business budgets. There may be things such as subscriptions or other services that you no longer need or use but you are still paying for each month. Set a goal to have at least six months of personal reserves set aside and three for your business.
- Grow
You should continually look for ways to educate yourself. Read books on personal growth and listen to podcasts. Stay up to date on industry trends.
There are a lot of opinions on what will happen over the coming year. Don’t get trapped into listening to all of them! Find sources that you trust.
Investing in coaching can help you personally and professionally. Buffini and Company’s training and coaching programs can transform your business to new incredible heights. The company’s website and social media pages are constantly updated with relevant content to help you stay informed. And be sure to tune into master motivator and industry legend Brian Buffini’s weekly podcast, “It’s A Good Life”.
- Invest
Investing wisely will increase your net worth. Use common sense and don’t invest in anything you don’t understand. Buy more in what you already believe in.
It’s easy to stress about your finances when it seems every media report starts off with dim news of a shaky economy. Again, find your trusted sources for your information and stick with them. And whatever you do, don’t continually check on your stocks! Rather, be wise and follow the lead of Warren Buffet by “playing the long game.”
Take Your Business to the Next Level
Check out buffiniandcompany.com for many free resources. Brian Buffini also has a weekly podcast, “It’s a Good Life,” where he shares business insights and discusses topics with industry leaders. To really take your business to the next level, sign up for a Buffini and Company coaching or training program. You will learn ways to discover hidden leads, increase your sales and have more quality time to spend with your family and friends.
