Recession proof business: Tips to prepare and build a resilient company

Published Wednesday 5 November 2025

Table of contents

• Difference between a slowdown vs a recession
• What happens during a slowdown
• Why inflation can make things weird
• What makes a business recession-proof?
• Industries and business types that thrive in recessions
• How do businesses prepare?
• Expert tips for recession-proofing (and inflation proofing) your business
• How a slowdown can create opportunity
• Recession-proofing your business checklist
• Manage your business finances with confidence
• FAQs on recession-proof businesses

Key takeaways

• Focus on essential services and maintain low overhead costs to build recession resilience, as businesses providing necessities like healthcare, repair services, and financial advice experience more consistent demand during economic downturns.

• Implement proactive cash flow management by creating detailed projections, accelerating invoice collection through online payment options, and communicating early with suppliers and lenders about potential payment delays.

• Adjust pricing strategically by making one comprehensive price increase that covers your actual cost increases rather than multiple small adjustments, while clearly communicating the reasoning to maintain customer relationships.

• Leverage economic downturns as opportunities to hire skilled talent from larger companies reducing staff, invest in employee training, and address long-delayed business improvements that can strengthen your competitive position.

Difference between a slowdown vs a recession

A recession is a period when consumer spending declines for six months or more. A slowdown occurs when spending levels off but hasn't yet turned negative. Both represent natural parts of economic cycles that affect business operations differently.

Slowdowns or recessions are a natural part of an economic cycle, with Marc Cowling, Professor of Economics and Productivity at Oxford Brookes University, noting there are generally more ups than downs. "Recessions, for example, are felt for about 12-18 months, then they're followed by a 2-year recovery, a 4-year boom, a year of overheating, and then a new recession."

What happens during a slowdown

Economic downturns create predictable business impacts that start with declining sales and cascade through your operations. Here's what typically happens:

• Sales decline first: Customers reduce spending, which immediately affects your revenue
• Profit margins shrink: Even if you raise prices for inflation, expenses often grow faster than revenue
• Cash flow tightens: Lower sales and delayed payments create immediate financial pressure

Specialist small business consultant Grant Anderson says that dwindling profits tend to hit cash flow. "Money dries up and businesses tighten their belts. They start cutting costs, carrying less inventory, and limiting payroll where they can."

Why inflation can make things weird

Mark Koziel, President of Allinial Global (an accounting association), says the good news is that slowdowns cool off inflation. "Declining sales allow under-pressure supply chains to catch up with demand and alleviate prices."

But he warns it could be a wild ride. "Sales have to drop before prices will, so businesses will feel the twin effects of shrinking sales and inflationary prices for a while."

What makes a business recession-proof?

While no business is completely immune to economic shifts, you can build resilience by focusing on what people need most. Businesses that provide essential goods or services tend to be more resilient, no matter the economy.

A recession-proof business often has these characteristics:

• Consistent demand: They sell products or services that customers can't easily cut back on.
• Low overhead: A lean business model with minimal fixed costs is easier to sustain when revenue dips.
• Strong customer relationships: Loyal customers are more likely to stick with you during tough times.
• Adaptability: The ability to pivot services or find new opportunities is crucial for survival and growth.

Industries and business types that thrive in recessions

Some industries weather economic downturns better because they provide essential services. If you want to start a business or adapt your current one, look for areas with stable demand.

Here are some of the most resilient sectors:

• Health care: People always need medical services, making doctors, dentists, and therapists essential. For instance, during the economic downturn caused by the COVID-19 pandemic, Medicaid enrollment rose by 15.7 percent as millions sought health coverage.
• Financial services: Accountants and financial advisors are in high demand as businesses and individuals navigate financial uncertainty.
• Repair services: When money is tight, people are more likely to repair cars, appliances, and electronics than to buy new ones.
• Child and elder care: These services remain a necessity for working families.
• Discount retail: Businesses that offer value and low prices often see an increase in customers during a recession.

How do businesses prepare?

You need to prepare strategically to recession-proof your business. While no business is completely immune to economic cycles, these strategies can help you build resilience:

• Risk diversification: Exporters and businesses serving multiple markets weather downturns better
• Strategic preparation: Proactive planning helps you navigate inflation, staffing challenges, and declining sales
• Expert guidance: Professional support helps prioritize actions and make data-driven decisions

Expert tips for recession-proofing (and inflation proofing) your business

Explore these tips to prepare your small business for a recession and inflation.

1. Preparing for a sales downturn (recession proofing)

The most obvious sign of a downturn is that customers stop buying so much. They're also more cost conscious with the purchases they make, which can work against small businesses.

"Covid reintroduced people to small businesses but it might have been short lived," observes Cowling. "Customers are drifting back to the big chains that can offer lower prices."

• Match supply to current demand: Adjust your inventory and service levels to reflect actual customer behavior, not historical patterns. Avoid cutting all products equally since recession impact varies significantly.
• Find recession-resistant opportunities: Some products thrive during downturns. Small luxury items like chocolate boomed during the 2008 financial crisis because they offered affordable indulgence. Look for similar opportunities in your business.
• Use your small business strengths to protect sales: Most businesses may see some decline in sales, but you should keep marketing to stay connected with your customers. Koziel says you built a lot of goodwill with your local community during the pandemic. Now is the time to use that loyalty.

"Introduce locals packages or customer appreciation days. Small business customers are incredibly loyal and they will respond. Lean on your relationship with them."

2. Coping with delayed payments (recession proofing)

Economic crunches slow down invoice payments from customers to suppliers. We know this because Xero's software records the time that passes between when an invoice is issued and when it's paid.

Taking the US as an example, that data shows payment wait times leapt 11% after the 2018 US-China trade tensions, and 15% after the first Covid outbreak.

Southall notes the problem is self-perpetuating. "A business that's paid late will then struggle to pay their bills on time, and so the problem spreads quickly."

Nail down your invoicing process. Start by getting your invoices out quickly. You're in for a longer-than-usual wait for payments but that clock doesn't even start until you've sent the bill. Keep track of how long it takes to get paid and take action if things start to slip.

"Seek payment on overdue invoices and if you start to suffer delays from your customers then seek similar relief from the people you owe," says Koziel. "It's not uncommon to ask suppliers for more time to pay. Remember that everyone just went through this with Covid."

Online invoices let customers pay instantly, which can reduce wait times for you. Speeding up payments is critical, especially as managing credit losses for accounts receivable is a challenge for many businesses.

Southall says that accepting online payments can also help. "Our data shows that you can reduce wait times by issuing invoices with instant online payment options. There are also a range of apps that you can use to automatically issue payment reminders when invoices are overdue."

3. Working through cash flow crunches (recession proofing and inflation proofing)

Cash flow problems escalate quickly during recessions because most small businesses only maintain 2-3 months of operating cash. A 10% sales decline combined with delayed customer payments creates immediate financial pressure.

Poor cash flow affects multiple business areas:

• Employee payments: Difficulty meeting payroll obligations
• Supplier relationships: Late payments to vendors and contractors
• Operating expenses: Struggles with utilities, rent, and loan payments
• Business stress: Increased pressure on owners and staff

Create cash flow projections. Map your expected income and expenses on a calendar to predict your bank balance on specific dates. This helps you spot problems before they become critical.

Implementation options:

• Automated software: Accounting platforms like Xero provide built-in cash flow forecasting
• Manual approach: Use our free cash flow projection template for simple tracking

Tracking who owes you money and what you owe others is key to managing cash flow. Be clear about who owes what

Keep track of unpaid sales invoices and upcoming bills. If incoming payments begin to slow down, have a chat with your suppliers and lenders about relaxing your payment deadlines. "They will feel better about extending your credit if you can give them specific reasons why," says Anderson. "Use a forecast to explain why your cash flow is low and when it will improve."

Adjusting your production to match demand can help you avoid unnecessary costs. Match production to demand

Smart sales forecasting can help you spot shifting demand and avoid overinvesting in unnecessary inventory, transport, or human resources. "Don't keep doing what you always did," says Southall. "Respond to the changing market. Step back from goods or services that have cooled off, and stay alert to emerging opportunities. Things will change."

Maintain flexibility with debt

With interest rates climbing, it's natural to want to pay down debts faster than normal. Anderson warns that may bring downsides, however. "If you put spare cash against your debts and then suddenly need that money back, you'll have to apply for a new loan," he explains. "The lender may not give it. I'd only accelerate loan repayments if the interest rate is really hurting you."

Regularly reviewing your spending can help you find savings. Review spending

Controlling costs is another way to protect cash flow but, again, it's a balancing act. "I've seen people cut off the muscle with the fat," says Anderson. "Try to only cut discretionary spending for starters. And ask your staff for ideas. They often see wasteful spending before a business owner does."

4. Adjusting to inflation (inflation proofing)

Koziel says input costs like inventory and energy will stay high even after sales start to slow. Cowling adds that laying off workers may not make sense this time.

"Employees have been so hard to find and the recession will be over in 12 months, maybe 18; so why would a business lay people off unless they really had no other option?"

So if costs remain high, what can you do?

Watch the right metrics. You may be reluctant to pass on every extra cost to your customers and often accept lower margins as a result. Southall says this can catch you out unless you change old management habits.

"Owners often check sales or revenue when gauging where the business is at," says Southall. "In normal times, those numbers are a good proxy for profits. But it breaks down when costs and volumes are changing so much. You need to go directly to the profitability measures."

Working out profits and margins takes more bookkeeping and math, but it's vital to keep your business viable. If you don't already have an accountant or bookkeeper, now is a good time to get one. Many will produce monthly reports tracking margins and profits for a flat fee. You can find an accountant or bookkeeper to help.

5. Handling the squeeze on margins (inflation proofing)

Margin squeeze forces tough decisions during inflationary periods. When costs increase by 30 percent, businesses often raise prices by only 10 percent to avoid losing customers, absorbing the remaining 20 percent themselves.

This approach protects short-term sales but is not sustainable over time. You need to find ways to restore healthy margins for long-term success. For example, U.S. public companies’ profits accounted for 4.5 percent of GDP in 1996, nearly doubling by 2021.

Plan your price increases strategically. Calculate the full impact of cost increases and make one clear pricing adjustment. Multiple small increases frustrate customers more than one well-communicated change.

Best practices:

• Size increases appropriately: Cover your actual cost increases rather than implementing partial measures
• Communicate clearly: Explain the reasoning behind price changes to maintain customer relationships
• Time it right: Implement changes once rather than repeatedly returning to customers

Koziel adds that customers understand inflation is happening and so price increases are expected. "Just be clear in your communication. It's the same if you're removing services because, for example, you can't find staff. Be open and honest. Loyal customers will still want to support you."

6. Access to debt and finance (recession proofing)

Business loans are usually secured by assets such as machinery, inventory, or accounts receivable. These assets often lose value during a recession, which can affect your borrowing options.

"You may no longer have enough security against your existing loans," explains Koziel. "And your scope for new lending will shrink or disappear altogether."

Keeping a good relationship with your bank manager can help you manage finance in a recession. Staying tight with your bank manager

Proactively communicate with your bank. Financial institutions have extensive recession experience and expect to adjust lending terms during downturns. Request flexibility early, but come prepared with a clear financial strategy.

Key preparation steps:

• Document your situation: Show how external factors affect your business
• Present your plan: Outline specific steps you're taking to weather the downturn
• Request specific help: Ask for payment deferrals, credit line adjustments, or other concrete support

"If you plan to run inventory low – and your loans are usually secured by inventory – then you need to work out how that looks with your lender," Koziel explains.

Anderson recommends being equally open about difficulties making loan repayments. "If your cash flow forecast shows certain payments are at risk, share that information early. Lenders will have much more confidence that you'll make good if they see you're forward looking and proactive."

7. Making decisions at speed

Cowling says economies can be disrupted by trade wars, wars, and pandemics – all of which have happened recently. This creates uncertainty for your business.

"Businesses already juggling the impacts of high inflation, low unemployment, and slowing sales may feel overwhelmed," says Southall. "They don't know what to focus on, or what's coming next."

Lean on mentors, accountants, and bookkeepers during uncertain times. Southall says they can help you frame decisions.

"Accountants and bookkeepers will help you deal with issues in the right order, and they'll make sure you have the necessary numbers to make smart decisions."

Your accountant or bookkeeper can create reports that show your financial pressure points. They can work with you to fix those problems. Many offer regular online consultations for a flat fee, which helps you control costs and avoid meeting fatigue.

"A regular cycle of reporting and troubleshooting can help you identify and resolve issues faster and will keep you clear-headed about the strategies you've chosen," says Southall.

Find an accountant or bookkeeper in Xero's advisor directory.

8. Finding employees during a downturn

Labor shortages are unusual during slowdowns. Businesses often lay off workers at these times, but this time may be different.

"Businesses have worked so hard to recruit staff that they're going to be very reluctant to shed them at the first sign of a downturn," says Southall. "They may cut back on hours, but wholesale redundancies seem unlikely at this stage."

High employment supports spending and can help the economy recover faster. However, Koziel notes it can also make it harder for you to find staff.

"Customers are walking into half-full restaurants and being told they can't be seated because there aren't enough staff. It limits a business's capacity to generate revenue."

Target skilled workers from larger companies. Economic uncertainty creates hiring opportunities as employee spending power declines and larger businesses reduce hours or freeze wages.

Strategic hiring approach:

• Focus on quality talent: Experienced workers may seek more stable employment
• Offer value beyond salary: Emphasize job security, growth opportunities, and company culture
• Time your outreach: Workers facing hour reductions or wage freezes are more open to new opportunities

Koziel predicts a redistribution of workers from larger businesses to smaller ones.

"Those medium and larger sized businesses may still go with the knee jerk reaction of laying people off. It's a fast way to cut costs. That will give smaller players a chance to find much-needed help."

Watch for new recruitment opportunities. You may even see your sales increase during a recession if you can hire the right people.

• "A business that has been understaffed hasn't been able to meet demand for months anyway," explains Koziel. "They might not even notice a drop in consumer spending. But if they can suddenly hire extra people and increase their capacity, they may actually find that sales go up."

Recessions can bring unexpected opportunities.

How a slowdown can create opportunity

While there are tricky times ahead for many business owners, slowdowns also present opportunities. Recession-proofing your business shouldn't be all about going into your shell. Here are a few upsides to focus on.

A slowdown gives you time to reflect and plan. You get to have a think

"In a boom, you don't have time to do everything the way you might like," says Cowling. "Everything is very immediate and often rushed. Slowdowns give you time to sort stuff out and reorganize the business to work better."

You can properly train your people

"Small businesses get busy so quickly that they often just hire people without ever really training them properly," notes Koziel. "Then they wonder why the staff aren't happy, or the customers aren't happy. A slowdown is a chance to set the business up so future employees can succeed."

A slowdown is a good time to tackle your to-do list. You can finally fix that thing

"Businesses always have a backlog of stuff to do, like fixing machinery or updating databases," explains Cowling. "There's heaps of work to do during the next few months. That's another reason why owners won't want to let people go. It's a chance to address legacy problems."

You may find it more affordable to grow your business during a slowdown. It's cheaper to grow your business

"Some owners – especially those nearing retirement – will opt to sell or close their business," says Anderson. "You may be able to acquire customers, equipment, or premises at a lower cost than during a boom."

Slowdowns often help businesses become more efficient. Your business will probably get more efficient

"Those businesses that survive downturns are also usually the most productive," observes Southall. "They improve processes or use new technologies to become more efficient so while slowdowns can be painful, they often help businesses come back stronger."

Recession-proofing your business checklist

Metrics to watch

• Debtor days (average time to get paid)
• Cash flow
• Profit (not revenue!)
• Profit margins

Think about

• Right-sizing your prices
• How to use downtime effectively
• How to trim your budget without gutting it
• How to adjust inventory
• How to allocate human resources more efficiently

Speak to

• Customers about price or service changes
• Banks about loan security and payments
• Employees about waste they see in the business
• Employees about hours

For next time

Build a cash reserve – if you're just googling "how to recession-proof a business" today then you're too late for this one. But it might help to have a bigger emergency fund for the next time this happens.

Manage your business finances with confidence

Navigating an economic downturn is all about preparation and having a clear view of your finances. By monitoring your cash flow, managing expenses, and staying connected to your customers, you can build a more resilient business.

Xero gives you real-time insights to help you make smart decisions with confidence. You can track payments, forecast cash flow, and simplify your bookkeeping so you can focus on what matters most. With Xero, you can run your business, not your books.

FAQs on recession-proof businesses

Here are common questions and answers to help your small business prepare for a recession.

What business does best in a recession?

Businesses that provide essential goods and services tend to perform best. This includes sectors like health care, grocery stores, auto repair, and financial services. People continue to spend on these necessities even when they cut back on discretionary purchases.

What industry is most recession proof?

While no industry is completely immune, health care is widely considered the most recession-proof. People's health needs don't change with the economy. Other resilient industries include utilities, consumer staples, and education.

Can a side hustle be recession proof?

Yes, a side hustle can be recession-proof, especially if it has low startup costs and provides a service that remains in demand. Think about skills like tutoring, freelance writing, home repair, or pet sitting. These ventures offer flexibility and can provide a stable income stream during uncertain times.

How long do recessions typically last?

Recessions vary in length, but historically they have lasted anywhere from a few months to over a year and a half. The key is to have a business strategy that can withstand a prolonged period of slow economic activity.

Should I start a business during a recession?

Starting a business during a recession can be a smart move. You may find lower startup costs, less competition, and a larger pool of talented employees. For example, during the COVID-19 pandemic downturn, initial unemployment claims rose nearly 3,000 percent, expanding the available talent pool. If your business idea meets a clear need and you have a solid plan, a downturn can be a great time to launch.