Surviving an economic downturn

An economic downturn may directly or indirectly affect your business.

Be prepared by analysing the risks to your business and putting strategies in place to reduce and survive the impacts of a downturn.

Defining an economic downturn

An economic downturn is a decline in the growth rate of Australia's gross domestic product (GDP). GDP is the total market value of all goods and services produced within Australia.

An economic downturn can be seen by a decline in:

  • income
  • industrial production
  • wholesale
  • retail sales
  • employment.

How economic downturns affect your business

Economic downturns generally occur in cycles. Monitoring your economic environment, and that of your industry or sector, will help you to make plans and be prepared.

It's likely you'll experience an economic downturn more than once over the life of your business.

You can take practical steps to help your business survive a downturn.

Economic factors that may impact your business

Potential impact

Customers are less confident in their finances, so they save more and spend less.

Questions to consider

  • Are my customers more likely to be at risk of unemployment?
  • How might this impact my sales and business income?
  • How could this impact the number of staff I need or the number of hours my staff would work?
  • How can I adjust my products or services to better suit consumers with lower incomes?

Find statistics on Queensland labour and employment.

Potential impact

Customers believe product and service prices may fall, so they delay purchase decisions.

Questions to consider

  • How would deflation in my business impact on paying my staff?
  • Would I need to lower my staffing costs and decrease numbers of staff or staffing hours?
  • Would I need to delay any pay rises and risk losing skilled staff?

Potential impact

There may be longer periods with fewer customers.

Questions to consider

  • How would a prolonged period of high unemployment affect my business sales income?
  • How many staff do I need to make products and service customers?

Potential impacts

You may be unable to get finance from investors, banks or other institutions, or the cost of borrowing goes up.

Question to consider

  • How would it affect my business if it could not access investors or loans?

Potential impacts

The costs for leasing premises, utilities and wages rise.

Questions to consider

  • Do I have enough resources to manage unpredictability?
  • How can I negotiate with my landlord about leasing agreements?
  • How would an increase in the minimum wage impact the business?
  • Will I have cash flow issues?

Monitoring and preparing for economic downturns

The best time to monitor what is happening with the economy and plan for an economic downturn is when your business is not under financial pressure. This will help you to make clear decisions.

You can monitor the business cycle by:

  • speaking with your accountant and business mentors
  • reviewing current business conditions and sentiments from the Australian Bureau of Statistics
  • contacting business support groups (e.g. Chambers of Commerce)
  • keeping up with business and economic news.

Preparing for downturns involves identifying potential risks to your business, analysing the likely impacts, and then developing a management plan.

Case study: Planning for an economic downturn

Jennifer owns a small fashion business, designing and sewing women's clothing. She has a small team who sew her designs, and a retail premises where dresses are fitted and sold. Jennifer is concerned about the risks around an economic downturn.

She has identified that:

  • customers may choose to delay buying luxury items, like her dresses
  • customers may demand discounts
  • falling business income might mean she has to lay off staff
  • employing experienced staff after the downturn has passed may be difficult
  • it may be difficult to get a loan for new commercial sewing equipment needed to grow her business in the future.

Jennifer has decided to adjust parts of her business operations by:

  • designing fashion accessories (e.g. scarves as a lower-cost option for customers)
  • providing repair and alteration services for dresses owned by her clients
  • developing a marketing plan to find new customers and maximise business income.

This plan enables Jennifer to continue to use and maximise her current sewing equipment and continue to employ her experienced staff.

Find out how to:

Adapting to a downturn

The economic downturn cycle can present business opportunities and can highlight potential areas for growth and expansion within your business.

Your customers may look for ways to save money during difficult financial times. Consider how your business can adapt if your customers:

  • look for ways to 'do it themselves' and want to buy kits and tools
  • grow their own food or travel shorter distances for tourism experiences
  • need to seek out cheaper products and services.

Assessing your business performance is critical in making it through a downturn. Assess your business with our tools and resources:

Ways to adapt

Consider these focus areas when preparing for a potential downturn.

Consider how you can improve your cash flow during difficult times.

  • Manage debtor payments by offering flexible payment terms if they are struggling to pay your invoices.
  • Request flexible payment terms from your suppliers.
  • Ask customers to pay in instalments and get a deposit before commencing work
  • Provide a discount to customers if all money is paid upfront
  • Delay the purchase of new equipment
  • Liquidate any unnecessary assets to free up capital.

Read more about cash flow management.

Look for ways to reduce your costs.

  • Reduce expenses by negotiating with suppliers.
  • Research other suppliers and products.
  • Relocate your business to a smaller premises.

Read more about managing and reducing your business costs.

There is support available if you are struggling with your business finances.

Read more about finance, accounting and profit.

Consider how you can optimise costs related to your employees.

  • Reduce staffing costs as an alternative to redundancy.
  • Work with universities and TAFE to employ interns under workplace integrated learning programs.
  • Reduce staff hours.
  • Introduce job sharing.

Read more about employing and managing people.

Find ways to make your marketing strategies work more efficiently with lower cost.

  • Review all marketing strategies and assess their effectiveness.
  • Use marketing channels with a personal touch (e.g. an email newsletter to your customers may be cheaper than social media ads and post boosts).

Read more about marketing, advertising and promotion.

Providing strong customer service is extra important during difficult times to make sure you keep existing customers, and win over new customers.

  • Provide added-value customer service to the top 20% of your customers.
  • Provide after-sales service to customers and find alternative products or services to suit them.
  • Spread your risk by having several main customers.

Read more about customer service.

Consider other areas of your business where you can find efficiencies.

  • Rent unused space to another business (e.g. part of a warehouse or office).
  • Move to just-in-time delivery (e.g. dropshipping instead of keeping stock on hand—keep samples only).
  • Work closely with staff to generate ideas, redeploy and retrain, and keep morale high.
  • Ask competitors if they can employ or 'second' your staff on short-term non-sensitive projects while your business stabilises.