5 ways for preparing start-ups for recession in 2023 | The Financial Express

5 ways for preparing start-ups for recession in 2023

Researchers at the National Bureau of Economic Research define a recession as an extended period of economic collapse or decreasing economic growth.

Recession, Recession 2023, Recession start-ups, startup Recession, Recession 2023
What does a Recession actually mean and indicate?

By Yuvraj Bhardwaj

The market will likely experience a recession this year, according to economists. Although a recession is inevitable and has occurred in the past, we should be prepared for it. Read Yuvraj Bhardwaj, the founder of Petonic Infotech, for five strategies that can assist new businesses or those considering starting one, as well as information on what occurs when the economy is in decline and how to prepare for it.

What does a Recession actually mean and indicate?

Researchers at the National Bureau of Economic Research define a recession as an extended period of economic collapse or decreasing economic growth. The economy of a nation or the entire planet is affected over the long run. In some ways, the easiest approach to understanding the recession is to contrast it with “normal” or prosperous economic activity and GDP. 

Aside from this recession signal, numerous common economic indicators have additional indications and symptoms to be aware of.

  • A tougher labor market and more layoffs than usual
  • a broad, widespread drop in stock market stock values.
  • More firms are failing than normal.
  • Workers will receive fewer increases or promotions.

1. Be Fiscally Responsible: If the economy experiences a recession, you will almost certainly need to decrease spending. Look for opportunities to save money, such as by reducing needless services or trips. Even minor savings accumulate over time, and the procedure can assist communicate to the firm as a whole that a frugal mentality is required. It is about safeguarding the bottom line and displaying shared accountability. Companies might benefit from keeping base pay low and then giving significant performance bonuses or profit-sharing agreements during an economic slump. It keeps employees involved in the firm and helps reduce costs during challenging times. Layoffs are still a possibility, of course, if things become very bad, but for the majority of CEOs, this should be a last choice. Reductions in staff are not only detrimental to morale and employee productivity, but they also run the danger of making you less ready to recover once the recession is over.                                                                                                     

2. Become ready for possibilities: Provided you work in the financial services industry, a recession will probably bring about a lot of volatility, which presents potential for financial gain if you know how to manage it. You will need to be prepared and focused for this, and you’ll also need all of your technology to be up to speed and performing at its best. Some sectors can be considered recession-proof. Although they may seek out less expensive solutions, they still need food to exist. Despite their best efforts, people will eventually need to heat their houses or fill up their automobiles with gas.

3. Clients come first at all times: Businesses will collapse if they don’t look after their customers, especially their most valuable ones. In addition to being crucial in good times when your clients may be seeking for cost-cutting measures, this is also true in difficult ones. They will be under the same pressures that your organisation is, so it’s crucial to engage with them in a proactive manner, provide them the information they need to take action, and make sure you’re prepared and able to help them when they need it. Get paid up front, Start the switchover to accepting payment in advance at the end of each month if you now only take payment after the fact. Be ready for opposition. Your clients won’t like the change, I can assure you of that, but it doesn’t matter. The wisest course of action would be to secure your company. By beginning now and paying one week sooner each month for the following four, you can lessen the discomfort.

4. Don’t put all of your eggs in one basket: Smaller consumers are preferable to a few key major accounts right now more than before. You’ve probably heard the saying, “Putting all your eggs in one basket,” and it’s true—avoid doing that. If you are already in such situation, you should actively increase your limited client base. Take action to expand your runway. Raising cash is more challenging when a recession occurs. Plan to survive with the capital you have in order to lengthen your runway, often known as your “cash date.” Spend money just to improve your product or service or to generate more revenue. There will be no more “nice to have” costs. Restrict new projects and give top priority only to those that have a good possibility of succeeding soon. Make sure you have enough cash to last through the inevitable growth since, in a recession, “cash is king.” Increase your equity capital by obtaining a line of credit. Even with interest rates rising, they remain affordable and less expensive than new equity borrowing.

5. Maintain contact with your venture capitalists: The years 2020 and 2021 were difficult ones for venture capital, with numerous start-ups trying to launch their values at unfeasible levels. As the economy weakens, these same investors must now choose which of the firms in their portfolio to prioritise and assist. For their portfolio firms to prosper, investors must set aside funds for next fundraising rounds. Down judging will increase in frequency starting in 2022. It may be quite challenging for a CEO to acknowledge that their firm has a reduced valuation. To ensure that your venture investors understand your long-term potential, it’s crucial to speak often with them. Accept your finest workers. Employees are being forced to reconsider their professional choices due to the recession. No matter how much equity a firm has, if employees start to worry about its future, they will take calls from direct competitors who can offer higher salaries, incentives, and perks. Spend time with your top staff to ensure that you comprehend their perspectives. Downgrading causes employee worries since they are still required to contribute stock based on the most recent round of investment. Your business will suffer greatly if you lose top talent. In order to keep your best talent and attract fresh talent, it’s crucial to manage and sustain your momentum. 

(Yuvraj Bhardwaj is the founder of Petonic Infotech. Views are personal)

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First published on: 21-01-2023 at 02:32 IST