How can you, as an entrepreneur, think about the external environment?

Problems in supply chains, shortages of raw materials, and rising electricity and fuel prices have led to a troubled global economy, with rising inflation and interest rates. In these turbulent times, it is easy to feel uncertain, so in this article we offer tips on how you, as a business owner, can deal with the uncertainty.

‍

‍

Price and cyclical sensitivity

The price and cyclical sensitivity of your industry is one of the first things you should consider as a business owner. Are you offering a product or service that customers will continue to use even if times get worse, or will you need to adapt your offer? The cyclical nature of your business will also affect how price-sensitive your customers might be in case you need to raise your prices due to increased costs. If you sell a product or service that your customers desperately need, they will be prepared to pay more for it. However, if you operate in a cyclical industry, price increases can have a major impact on your demand.

‍

Planning for the long term

During a recession, both society and the economy can become tense. In such situations, it is easy to become reactive if you do not have a long-term plan to follow. Making adjustments and ensuring your company's finances can withstand tougher times is of course important. Sooner or later, however, the economy will turn into a boom again and if you have only adapted your business to the current situation, there is a risk that your company will fall behind the competition. Having a long-term plan and having the courage to stick to it also reduces the risk of making hasty decisions that could backfire at a later date. By planning for the long term, you give your business the opportunity to grow and develop during tougher times, and to be well equipped to gear up even more when the economy picks up.

‍

Review your contracts

When interest rates and commodity prices go up, it's a good idea to review your contracts - both from suppliers and to customers - to avoid incurring increased costs while revenues decrease. Therefore, review your local and supplier contracts and see if you can tie them up for a period of time to avoid increasing their prices. Even if it would not be possible to lock in the contracts, it will give you an overview of the potential cost increases you might face, and you can then budget for them. Similarly, you should not lock in prices to your customers too much to give yourself the option to increase prices if your costs increase.

‍

Stocks and liquidity

As a business, it's always good to have strong liquidity to pay off debts in the short term. However, in times of recession, it is especially important to have a buffer in case you are hit by increased costs, which is why it is good to start planning how you can strengthen the liquidity of your business. Another tip is to review your possible inventory. If you have the opportunity, it might be a good time to stock up a little more than you normally would. This will ensure that you have access to products or components that may run out from your suppliers, as well as delaying the impact on your business of any price increases in the supply chain.

‍

Marketing

Many businesses choose to cut back on marketing during a recession when they cut costs in general. While reduced spending may look good in the short term, it doesn't necessarily mean it will benefit your business in the long run. Instead, if you choose to invest more in marketing when your competitors are cutting back, you have the opportunity to increase your sales and gain further market share. Something that will not only benefit your business for the moment, but also by giving you a head start when the economy turns up.

‍

Take the opportunity to adjust activities

When the economy in society is at its peak, it is easy to overlook things that are not really working or performing at the level intended. A recession can therefore be a time when it becomes easier to get rid of, or wind down, parts of your business that are slowing others down or are more trouble than they're worth. By doing so, you can have more time and resources to spend on parts of the business that generate better returns. It can also be a good opportunity to diversify the activities of your business to find new sources of income and to spread your risks.