Businesses face a tough but transformative 2023: How to survive & create a business strategy in a recession

  • 2023 is set to be a challenging year for businesses, but the recession can create opportunities to grow and strengthen
  • Many sectors are still potentially buoyant, including education, insurance, tourism and electric vehicles
  • You must protect your company, too, including with trade credit insurance, which safeguards against bad debt.

2023 will be a tough but transformative year for UK businesses as they face a flood of pressures and uncertainties, including continued inflation and weakened consumer spending. The UK economy is nudging into recession, and even the usually upbeat Confederation of British Industry (CBI) predicts it won’t start recovering until late 2023.

But there are some signs of hope. Inflation fell from 11.1% to 10.7% in November, according to the Office for National Statistics (ONS). This fall is largely due to shrinking demand but could also stem from easing pandemic-related supply chain issues.

Though the economy is contracting slightly, output increased in 10 of the 20 ONS sectors last quarter, including education, financial and insurance activities. One reason for education’s resilience is that when people feel insecure in their jobs, they look to improve skills or retrain.

Other examples of still booming sectors include:

So, what can firms in these and less buoyant sectors do to prepare? If inflation keeps falling, it could give consumers and businesses a psychological lift and build confidence they can survive the downturn relatively unscathed. Now is the time to start planning and building a business strategy for the recession.

Balancing offence and defence

With the outlook still challenging, many businesses may be tempted to batten down the hatches rather than go on the front foot. But hunkering down until the recession ends – by cutting your marketing budgets, for example – risks other companies going on the offensive and stealing your market share. A balance of defensive and offensive strategies for businesses in a recession may work better, and there is usually plenty to do to strengthen both areas.

Recessions may challenge business owners to compete harder. A shrinking economy means well-run companies can exploit gaps created by weakened or failing competitors, pivot towards new opportunities created by changing economics and drive more aggressive marketing strategies.

If things are looking quieter, your business strategy in a recession may be to work on building efficiency, say through automation and quality. For example, improving intellectual property, innovation and agility. This should leave your firm in good shape for recovery when it comes.

Offensive business strategy in a recession

The Motley Fool says there are optimistic signs for FTSE 100 and 250 stocks as inflation recedes and firms keep digitising operations to boost profits. Even in a recession, there will be growth opportunities. Being proactive and prepared can help. To get ahead of the competition you can:

  • Read relevant sector reports and keep abreast of new trends
  • Get involved with professional associations and other industry bodies – find out what their members say
  • Look at winning companies and see what they are doing to stay ahead
  • Look for sectors or niches that are still growing or emerging. What factors will support them, such as consumer trends and government grants or incentives?

Defensive business strategies: protecting your company

Firms must balance optimism with robust protective strategies at any time, but especially during a recession. Some ideas to strengthen your defences in 2023 are:

  • Revisit your cost and credit control processes to ensure they are as robust as possible
  • Map your entire supply chain to identify and mitigate risks by, for example, diversifying suppliers; building internal manufacturing capabilities; or bringing your manufacturing base closer to home
  • Take measures to improve customer loyalty and the lifetime value you gain from each customer
  • Look at ways to increase agility in your business so you can pivot when necessary
  • Use modern cash flow forecasting tools to make sure you can meet upcoming liabilities, continue investing for growth, and scenario plan to be ready for whatever happens in the next 12 to 18 months
  • Get insured. People and businesses need insurance regardless of economic conditions. And certain types of cover, such as trade credit insurance, provide critical protection to businesses in a recession.

Safeguarding your cash flow: how Allianz Trade can help

One of the most sobering aspects of the upcoming recession is that it will trigger a wave of insolvencies. If one or more major customers goes bankrupt, it can threaten your financial stability. As a key factor of your recession business strategy, you need to look for early warning signs of customers in financial difficulty, and be ready to manage failures among your suppliers and B2B customers.

Trade credit insurance protects against late or non-payment, and supports your growth by enabling order volumes from new, creditworthy customers to rise quickly.

Allianz Trade also provides credit risk analysis services to alert you to potential problems with clients. And our global network and services enable your firm to unlock and protect cash flow while reducing costs and minimising liquidity risks in your supply chain.

Emerging stronger

Forward-thinking firms will use the 2023 recession to create a business strategy that improves their long-term positioning, even if they are not seeking new markets. This will include investing in technology to increase efficiency and productivity; lower operational costs; improve proposition and customer experience; and speed up decision-making processes.

Dynamic companies may also use the time to focus on broader projects such as building quality and sustainability. For example, sustainability projects can increase long-term performance by reducing environmental, social and governance (ESG) related risks and better aligning their products and services with customer values.

All these factors form part of a recession business strategy that will help firms be ready to bounce back strongly when the economy recovers.

For a free credit insurance consultation call our UK team, 09:00-17:00 Mon-Fri.