Canadian economists agree: we’re headed into a recession.
A recent Bloomberg survey of 26 economists predicts that Canada will experience a short-lived slowdown in the first half of 2023, followed by economic growth in the latter half of the year and into 2024.
Although experts predict that the coming recession may not last long, it can still bring challenges, and you should take action to help your business weather the storm. Read on to learn how to create your small business recession plan — and set your business up to weather the storm.
Why your business needs a recession plan
Navigating a recession means grappling with uncertainty. Recession scenarios can vary from a mild downturn lasting a few months to a more pronounced dampening of the economy with a longer-lasting effect. And factors outside your control, such as the number and scale of Bank of Canada interest rate increases in 2023, may impact how the recession plays out.
Advance planning allows you to map out how multiple scenarios may affect your customers and your business. By creating contingency plans for each recession scenario, you're prepared to act intentionally and strategically if one of them occurs, rather than waiting to see what happens and making your plan on-the-fly.
Focus on demand forecasting
Anticipating demand should be at the heart of your recession plans. When done well, demand planning can help you minimize inventory holding costs, as well as prepare you for surges in demand, so you can negotiate agreements with suppliers and hire or outsource talent when you need to.
To begin, focus on the evolving needs and demands of your customers. In general, Canadians are curbing their spending, and 92% say they’re seeking out lower prices and looking to save money. However, not all consumers — or businesses — are affected equally. Some businesses may find that customer spending remains high as a result of inflation, pent-up demand from the pandemic, or unwillingness to compromise quality or brand for a lower price.
Begin by reflecting on your unique customer base, and the reasons they shop with you, to anticipate how they may be affected by the recession. Map out multiple scenarios and use your findings as a compass to guide your decision-making.
Revisit your offerings and brand messaging
As you reflect on your customers’ changing needs and how they may impact demand, look for opportunities to position your brand for success during a downturn. Meeting customers’ evolving needs may call for emphasizing (or de-emphasizing) existing offerings, introducing new offerings, or rethinking your pricing structure.
Consider revising your brand positioning, as well. Customers are willing to pay a premium for local products from brands that drive social and environmental change, so sharing your commitment to these core values may help you attract like-minded shoppers in a downturn. Similarly, 86% of Canadians say it’s important to support Canadian small businesses. So, highlighting your locally-sourced offerings and being transparent about your supply chain may help you benefit from a “Made in Canada” advantage.
Consider your financial health and expenses
Good financial wellness is important for any business, but it’s especially critical during a downturn. A healthy cash flow and robust cash reserves can help you withstand economic turbulence — and having cash on hand gives you the option to invest in your business when it makes strategic sense.
If you find your business could benefit from additional funding or financing, now may be the time to seek it out. The cost of borrowing went up significantly in 2022, with the potential for additional interest rate hikes in 2023. Locking in your rate now, before there are further hikes, may help you secure the cash buffer you need at a lower cost.
Now’s also the time to create a plan to manage your costs if sales slow down. Identify discretionary expenses that you may be able to cut to maintain your margins. If you’re planning significant short-term investments in your business, weigh the pros and cons of putting your plans on hold until the recession passes to decide whether to move forward with your plans. Finally, consider renegotiating agreements with suppliers to secure payment terms that will help you manage your cash flow.
Remember, the recession won’t last forever
The length of the coming recession is anyone’s guess, but recessions in Canada typically last between three and nine months — in line with the 6-month downturn predicted by economists. Taking steps to prepare now, and anticipating how a recession may impact your customers, gives you an opportunity to strategize for a downturn — and set your business up for success long after a recession subsides.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.