Even as the UK economy shrinks at the fastest pace since 2008, and as companies grapple with the full impact of COVID-19 on their businesses, the UK still hasn't technically entered a recession – defined by the Office for Budget Responsibility as “two consecutive quarters of falling output”.

An official recession could announced if Q2 2020 GDP growth is negative, which may further constrict business confidence and signal prolonged economic sluggishness, putting more downward pressure on already struggling business owners. Before that happens though, business owners may want to consider taking a few steps to hedge against recession-caused disruption.

1. Secure more favourable payment and financing terms

Lack of cashflow is one of the most immediate threats to your business and is likely to get worse if a recession kicks in. You can help improve yours by taking this time to negotiate better payment and financing terms (e.g. allowing you to pay bills in 90 days vs 30) or temporary discounts and deals with suppliers and vendors.

Likewise, you can help accelerate the number of funds coming in the door by offering clients discounts on preorders for products and services or offering pricing specials (such as 5%-off coupon) if their outstanding invoices are paid more rapidly. The time before a potential recession hits can also be used to negotiate with lenders and landlords regarding temporary suspensions in interest or rent payments, including implementing a working plan for how you’ll eventually repay these sums.

2. Build out your credit options

Having lines of credit to tap if money gets tight can help you out in a pinch. Now’s a good time to speak with lenders (including your credit card company) and up the maximum amount you can borrow. While it’s not always necessary to tap into these resources, having backup reserves may come in handy if times get lean, especially if other businesses are feeling the pinch themselves and unexpectedly extend financing terms or withhold payment.

Similarly, it’s the right time to begin saving more of any money that comes in the door and setting aside a 30% cushion for future expenses. Remember: Regardless of what the terms on any given invoice say, during times of recession, clients might delay payment even as your own bills begin to come due, and customer activity can drop off with scant notice.

3. Reduce unnecessary overhead and expenses

If a purchase doesn’t serve a vital purpose, get it off your balance sheet. If a more affordable option exists for getting a task completed with similar time and quality standards, make the switch. Similarly, before a recession hits is an opportune time to start pivoting away from long-term contracts and instead moving towards pay-as-you-go services and on-demand business solutions. While doing so may cost you more on an individual per-task basis, these expenditures can be far less risky than keeping a fixed, long-term expense on your books.

In addition, look for areas of your current operations where affordable, high-quality alternatives exist that you could quickly implement instead. For example: From search engine marketing to foreign language translations, many online marketplaces provide access to pre-built solutions or value-priced providers that can help with recurring business needs at a fraction of your current costs.

4. Employ flexible staffing solutions

While several government programmes currently offer assistance if payroll is a concern, it’s hard to say what financial impact they’ll have if and when a long-term recession hits. However, in the event one arrives, before you consider laying off staff, remember that a number of alternate solutions can potentially help you avoid reducing headcount. For example, the UK Government’s Coronavirus Job Retention Scheme allows you to furlough staff, with the Government covering as much as 80% of an employee’s wages.

You might also consider: reducing workers’ hours, asking employees if you can stretch out salary payments, putting bonuses and incentives on hold temporarily, or instituting a small company-wide pay cut across the board. Alternately, you can also assign employees more responsibilities to help boost productivity and increase their impact on the bottom line.

The one thing you can currently count on as a business owner is that uncertainty is the only certainty going forward.

In addition, many small businesses are increasingly outsourcing certain needs to freelance contractors, and crowdsourcing contributions as a means to cut costs as well. You might also choose to temporarily forego a portion of your own salary, or set up a fund to help teammates in need.

5. Focus on scenario planning

Scenario planning is the exercise of asking yourself a simple question: What if? For example: What if stay-at-home guidance is extended longer than anticipated and customers can’t visit your retail stores? Or what if car sales or live event ticket spending suddenly plunges in the wake of rising unemployment rates? Think ahead and plot out trends and events that are likely to occur over the next year, as well as their potential impact on your business.

Then brainstorm additional wildcards – such as a sudden collapse in supply chain fundamentals due to political volatility throughout a global region or a second wave of viral outbreak – that could impact how the market for the products, services, or solutions you offer develops.

Once done, consider how the future is likely to look for your industry and the role you can play within it. Then work backwards to determine which business strategies are likeliest to help you safely bridge the gap from your current operating reality to this future state.

6. Determine where to refocus and reinvest

Recessions are uncertain times, leading many businesses to quickly abandon plans and pull back spending habits. But what if you’ve been planning for these downturns in advance and socking away a healthy nest egg for a rainy day, like experts advise?

In that case, now may be a good time to spend on growing your resources and capabilities and ramp up your market presence. In other words, the best defence, as they say, is a good offence. Ask yourself: Where do growth opportunities currently exist? Where could you be making a promotional splash? Are there new markets you could be entering, or ways to better position preexisting products or services to meet customers’ changing needs?

During times of recession, the more competitors retreat, the more they create opportunities for you to build competitive advantage and advance. What’s more, now’s also a potentially good time to focus on internal improvements such as process improvement and employee training.

Recessions can be intimidating for many organisations. But even when they arise, they don't have to be a showstopper. With a little advance planning and a little ingenuity, you can ultimately come out ahead of adversity just by teaching yourself to look for ways to make the most of an otherwise challenging situation.