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Written by Robert McCarthy

11 Key Strategies for Building Anti-Recession Immunity

SkuNexus presents a series of tips on preparing your eCommerce business for recession through financial management and software management.

In times of rising inflation/interest rates, a declining stock market, and general unease about a potential economic downturn, all business owners must take action in some form. The notion that executing a specific checklist can recession-proof your business is rather far-fetched, but certain decisions can help build as much anti-recession immunity as possible. 

This is the key. Being able to weather the storm and thrive once the dark clouds have lifted is the goal here, but it is no simple task — it requires focus, organization, and a great deal of hard work. 

The prize on the other side is a lean, disciplined enterprise ready to seize market share from competitors who did not do what was necessary to get their ships in order before the headwinds picked up.

At SkuNexus, we work with eCommerce businesses and design management software solutions to help them streamline operations, optimize resources, and make their processes more efficient. These are necessary improvements for any business to execute, no matter the economic outlook.

Here, we would like to discuss 11 essential steps to take to ensure your business not only survives through turbulent times, but is well-positioned to excel far into the future.

SkuNexus can help your eCommerce business get through a recession.

Stabilize/Strengthen Your Financial Position

This is a crucial area of focus for any company regardless of the situation, and the philosophy is little different than securing one’s personal finances in times of stress. In brief, the strategy is to build up cash, reduce debt, and have options and pressure-release valves at the ready.

1. Raise Cash Reserves

The importance of building up cash reserves in advance of recession cannot be overstated, and a number of tactics can be employed to achieve it. Not all may be feasible for every business, but each option in this area should be considered and explored. 

  • Look for ways to cut costs: This may sound like an oversimplification, but every aspect of the business must be reviewed and every outlay scrutinized. More on this below.
  • Increase sales: Focus on efforts to bring in more revenue. Slashing prices to raise funds at the expense of profit is a viable tactic here.
  • Consider financing alternatives: A number of options are available to small businesses, including loans, lines of credit, and crowdfunding.
  • Sell assets: This is an excellent time to trim the fat, and any valuable yet non-essential assets should be considered for sale.
  • Use a credit card: This should only be employed if all balances will be paid off at the end of every month. No exceptions.

2. Reduce Debt

Paying down debt firms your financial position, expands the range of resources to draw on if needed in the future, and saves significantly on interest expenses, which can then be put into cash reserves. Particularly in a rising interest rate environment, this is absolutely vital.

3. Build Emergency Funds

It is advisable for small businesses to create a cash reserve to use in case of emergencies — this reserve should be able to cover essential costs for up to six months (payroll, inventory, utilities). Aggressively collecting outstanding payments is a completely reasonable tactic to augment this fund, and insurance options to protect against unexpected expenses (e.g. Business Continuity policies) also exist. 

4. Secure Liquidity Crisis Options

It is important to research and understand your options for obtaining additional funding before you actually need it. Some options to consider include taking out a revolving loan, investing personal funds into the business, exploring alternative financing options, seeking private equity investment, and looking into government resources such as Small Business Administration (SBA) loans. By knowing your liquidity options ahead of time, you will be better prepared to secure the financing you need to keep your business running smoothly.

5. Manage Cash Flow

During times of economic downturn, it is essential for small business owners to have a plan in place to manage cash flow. To create this, you must first understand your current cash balance and how it changes each month. Then, create a forecast of expected cash flow for the next quarter. This forecast can serve as an early warning system, alerting you to any deviations from your plan. 

SkuNexus can help your eCommerce business get through a recession.

Cut Costs Through Rigorous Management

The options available for lowering business expenses vary greatly, and many companies will try to slash anything possible before cutting their biggest expense: employees. This honorable goal can be achievable, but knowing where to look is not always apparent. At SkuNexus, we believe the answers often lie in the employment of management software and the automation of manual processes. Here are some examples.

6. Order Management

Elimination of manual processes can begin the instant an order is received. Upon receipt from an eCommerce platform, an order management system (OMS) will make a series of decisions simultaneously to determine where an order should be routed for fulfillment and will track the order through its entire life cycle.

7. Warehouse & Fulfillment Management

Many warehouses are rife with inefficiency, waste, and bloated expenses that go largely unnoticed. This is not necessarily a commentary on workers or their supervisors, but merely a result of less-than-optimal operations. The implementation of warehouse and fulfillment management software can provide direction, save time, and reduce expenses on everything from labor to forklifts to packing tape. 

  • Warehouse and fulfillment processes (putaway, pick & pack, etc.) are directed and tightly controlled.
  • Barcode scanners and other checks and balances ensure accuracy throughout operations.
  • Expensive errors can be reduced to nearly zero via automation.
  • Exact quantities of packing materials can be used, eliminating waste and guesswork.
  • Shipping costs can be constantly monitored so that the best, most cost-effective option is always the one selected.
  • A range of fulfillment methods popular with customers (BOPIS, ship-from-store, etc.) can potentially be employed.

8. Inventory Management

This is at the core of the belt-tightening that comes with recession preparation. For any online retailer, clear insight into inventory - how much you have and where you have it - is paramount. This information needs to be reflected and updated both internally, and across all sales channels, in real time. 

During economic downturns, inventory may take longer to sell and can become more vulnerable to issues like obsolescence, theft, and damage, leading to higher storage costs. While it may be tempting to reduce inventory to minimize these costs, it is important to find a balance between converting inventory to cash and being able to meet customer demand. Running out of stock can result in lost revenue and damage customer relationships. To optimize inventory and increase cash flow, consider reducing the amount of less popular, less profitable, and easily replaceable items while also evaluating the supply chain and stocking up on top-selling products.

Optimized inventory management is no small task. For businesses with a broad selection of products spread across multiple locations, an astonishing amount of organization is required. This can only be attained through an Inventory Management System (IMS).

SkuNexus can help your eCommerce business get through a recession.

Get Creative

The merchants who win at eCommerce do so through a combination of smarts, good fortune, and resourcefulness. Creative thinking is required in the best of times, and even more so during difficult ones. 

What else, then, should you consider doing to make it through a rough economic patch?

9. Seek Strategic Partnerships

When choosing partners, look for those that can help increase the perceived value of your offerings by improving their quality, durability, and other desirable attributes. Keep in mind, however, that partnering with certain companies may also lead to a division of revenue. 

10. Identify New Revenue Streams

How can your business generate new sources of revenue without significant additional investment? This may involve exploring new markets (e.g., from DTC to B2B), expanding to reach customers in new locations via 3PLs, or repurposing current resources to create new products. For example, a seller of herbs and spices might combine items into mocktail-making kits. Opportunities abound.

11. Fortify Relationships with Existing Customers

Current customers are already familiar with your business and may be more open to additional purchases or upgrades. Reach out to them. Additionally, it is more cost-effective to target individuals who already know about your company and products through perks such as early access to new items or special discounts. By showing appreciation for your customers, they are more likely to continue doing business with you and recommend your company to others.

The challenges that lie ahead will test most online retailers, and new entrants will continue pushing the competition — that is the nature of capitalism. At SkuNexus, we think financial responsibility, stringent management, and out-of-the-box thinking form a powerful combination that can help propel your business into the next era of eCommerce.

If you would like to learn more about SkuNexus and what our management software solutions can do for you, please schedule a demo.

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