Dateline: Kuala Lumpur, Malaysia
Over the last decade, we have seen the longest bull market in history.
But the coronavirus pandemic is set to stress test all the businesses and fortunes that have sprouted in recent years with a major recession.
People are nervous and I know what they’re feeling – the anxiousness and the uncertainty is enough to drive one insane.
I have run my fair share of businesses over the years, the first of which were in the US. So, I can confidently tell you that if you are expecting help from the government to survive, your patience is likely to outlast your business.
Unless you happen to be in a position to lobby the government or bribe high-ranking bureaucrats with a lucrative position after their term, you’re on your own.
In order to make it out the other end and even make money in a recession, you must do four things. Here’s how to recession-proof your business:
1. Think Globally (Diversify)
Although recessions are increasingly global, it doesn’t mean that all areas of the world are equally affected. There are always global pockets able to weather the storm without major incident.
For example, Australia did not experience an economic setback in the Great Recession of 2008. Most people barely felt any economic disruption, given that the economy is very dependent on China.
If you broadened your horizons of who could potentially be your customer, you could have received an income stream from an area of the world which was virtually unaffected.
Perhaps in time, this lifeline might have even become the primary audience of your business. By not artificially shackling yourself to one specific demographic or area of the world, you have a better ability to find potential customers.
2. Niche Down
At first glance, it might seem as if I’m contradicting myself by telling you to both broaden your reach and niche down. The difference? Specialize in what you’re good at while broadening your audience.
Often, companies become bloated in the good times when they were trying to expand their product line and increase their market penetration, but then fail to cut the unprofitable product lines until it is too late.
If you cut down your offerings to what you specialize in, chances are you will be able to save money by eliminating unnecessary elements in your business. You won’t be asking yourself how to reduce business costs in marginal amounts because you will be able to focus on what is actually important
3. Reduce Risk (Reduce Costs)
Unless you are heavily indebted, a recession doesn’t kill your business in one blow. It’s death by a thousand cuts. Some are bigger, some smaller, but they all contribute to a countdown towards bankruptcy.
You must learn how to reduce financial risk in business.
Go line by line on your expenses and catalog them by whether something is essential or simply beneficial. Then, slowly cut according to need.
The trick is that you need to be able to outlast the crisis with your cash reserves, assets, or client income.
Nothing should be beyond scrutiny. And now is perhaps the perfect opportunity to look into overseas job hiring to cut down on costs. You don’t need to hire locally simply because everyone else does it.
The internet gives you the opportunity to employ people overseas and build remote teams. There is plenty of excellent and talented cheap labor overseas that could benefit your business and lower your costs.
Your business could be looking at up to an 80% expense reduction in labor costs, plus there are plenty of other benefits in taxes and even citizenship.
4. Reduce Your Taxes
By using the first three tips, you can optimize your business to be able to weather the storm, but you’re barely scratching the surface.
More often than not, a business’s primary negotiable expense is tax. Business owners just accept it as a given, chuck that expense under “death and taxes” and move on.
Here are two interesting facts:
- In developed economies, Small and Medium companies have a small profit margin. The Canadian government, for example, estimates that the average SME has a 1.8% – 3.7% profit.
- Business owners are often paying 40-50% tax rate in the western world.
Put the two together and it would seem to be that the government is responsible for killing a good portion of the businesses, in good and bad times. In other words, tax completely erodes the profitability of otherwise perfectly fine businesses.
Yet people just take this as a given.
People are essentially accepting their local government as a business partner that more often than not kills a business before it is able to find its footing. And for what benefit?
So that they bail you out with a freshly printed small wad of cash, a 0% interest loan, or avoiding payroll tax for 90 days?
Looking at it objectively, you have a far better chance of survival if you optimized your business in a low- to no-tax environment and saved what you would have otherwise spent on taxes for a rainy day.
Put bluntly, the best way to prepare for the next recession is to reduce your taxes.
Are you willing to let your business die for nationalistic sensibilities, or do you do the right thing and ensure that it lives and thrives during these times?
If you want help recession-proofing your business, investments, and life, feel free to reach out to our team. We help people do this every day.