3 Bad Decisions Businesses Make During A Recession

Kelowna AccountantKelowna accountant Ken Davidson from BDO addresses the most common concerns business owners have during a recession and how to assess the best course of action in each situation.

One of the first things that I see during a recession is a tendency for people and business owners to start to buckle down and cut costs as much possible. I think this is more of an instinct than anything because in a recession you hear how things are bad out there and out of fear you simply stop spending.

That can be a good or bad decision depending what you stop spending on. The assumption I often make with a business owner is that they are actually operating their business efficiently. When I say efficiently, I mean they’re not spending money on the things that make sense to be cut.

Related: Why Family Businesses Fail

In some businesses that assumption is wrong but in most businesses, I think it’s right. I think the majority of business owners are aware of the money going out of their business and aren’t too frivolous with their spending habits.  When business owners start holding back more money, it starts to affect their business like a self-fulfilling prophecy because they’re inevitably going to hit a cycle of recession.

1. Cutting Marketing & Advertising Budgets

The first thing that most people cut is their advertising budget. Depending on what they’re doing with that budget, this can be the wrong decision.  At one point you thought that marketing and advertising expenditures were the right choice for your business, now you proceed to cut advertising, you may be effectively cutting your sales as well. If your name isn’t getting out there and people aren’t being reminded of your business consistently, they may forget about you.  This cost savings could affect sales more than the costs you have saved.

Kelowna Accountant2. Stop Hiring

Another thing I notice people doing during a recession is they stop hiring. Many people would agree that is the right decision because you’re saving that cost. This can also be right or wrong.

Make sure your hiring is logical and strategic. Recessionary periods are a great time to pick up fantastic staff as there are likely highly quality candidates looking for jobs as they were downsized by companies that did a hack and slash. Don’t cut off your hiring opportunities just because you’re in a recession. Keep your eyes open for key employees so that you are set and structured appropriately at the time your business comes out of the recession.

3. What About Sales?

Now the big issue with everyone in a recession is obviously sales. When your sales are going down, you’ll be very enthusiastic to start figuring out what to do about it. In a recessionary period you need to work smarter.

Recognize where you can get the best resources. Recognize where you can get those additional sales. Offer new products and services to your current clients instead of going out and looking for new clients.  New clients tend to have a higher acquisition cost then working with existing clients. Work closer with existing clients and customers to better serve them and move them along to their goals.

Related: 7 Top Priorities For Small Business Growth

It’s always a good idea to consider consulting with your business advisor or local Kelowna accountant to see where you can open up some cash flow in your company without hindering the parts that continue working well for you.

When you start to recognize a recessionary period, it’s really important to review any excess spending and be very aware of which spending you’re cutting to get through it. Don’t just hack and slash, be very strategic so that every dollar spent is being used for the things that will grow your business in the short and long term.

 

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