Economic downturns affect different industries in different ways. Some businesses do just fine in a tough economy. Other companies struggle during recessions, as consumers shift their spending from luxury products and services to 'no frills' alternatives and seek cheaper forms of entertainment.

Times are hard for these companies, but not hopeless. If your new franchise faces pressure, you'll be able to fight back by focusing on your cash position. Your chief strategy should be to conserve the cash you have while seeking ways to generate more.

Tip #1: Recession-proof your franchise

If you developed your business plan when the economy was strong, now is the time to re-visit some of its assumptions. Start by creating three revenue scenarios for the future—a best case, worst case and 'likely case' scenario. Your worst case scenario should predict aggressively, e.g. a 50 per cent decline in revenues. Your likely case scenario should be calculated based on projections for both your business sector and the economy in general, garnered from a source you trust. With these numbers in hand, determine how (and if) your business could remain viable in each set of circumstances. If your scenarios are realistic, they will allow you to:

• Proactively reduce costs, e.g. choosing not to expand your payroll or purchase equipment; and
• Plan where and how to make cuts if this becomes necessary.

Tip #2: Cutting business costs

When the economy is strong, many business owners pay little attention to their expenses. This bad habit must be broken when a recession hits. Review all your expenses and cut discretionary spending, such as conferences, trips and meals.

Assess your performance

Next, use your accounting information to generate business reports. At minimum, you should be reviewing detailed reports on inventory, sales, purchasing and company expenses. Rather than generating quarterly reports, generate them once or even twice a month. Engage key staff to review your reports—perhaps during a regular status meeting—and ask them to help you identify trends and danger signs. A major danger sign, of course, is becoming unprofitable.

Know your fixed costs

Fixed costs, such as rent and insurance, remain the same even if your revenues drop. A business with high fixed costs can become unprofitable very quickly, so have a clear idea of how much you pay in fixed costs per month.

Reduce your variable costs

Variable costs, such as raw materials and utilities, can be reduced as your sales decline. Controlling variable costs can begin with something as simple as buying low-wattage bulbs or turning down the heat to reduce your bills.

Consider renovating

Your franchise agreement may require you to refurbish your franchised location. If you're facing a cash crunch, you should postpone such projects for as long as possible. However, if your business is relatively strong, consider major renovations now. Not only are borrowing costs historically low, you may also find it easier and cheaper to hire construction tradespeople.

Tip #3: Control your business's inventory

In a strong economy, businesses focus on margins, i.e. how much people will pay for a product above its unit cost. In a weak economy, you may need to break a few rules and sell slow-moving merchandise at a loss. Holding on to it provides you with nothing, while selling it at, say, a 25 per cent loss generates cash and frees up shelf-space for more popular items.

Track your sales trends

If you're a retailer or restaurateur, you can avoid being overstocked by monitoring the popularity of the products and services you sell or meals you provide. This is an important part of business, especially in leaner times. A restaurant that runs out of ribs can probably sell another dish to a customer, but if the ribs spoil and must be thrown away, you're tossing away money along with it.

Track your labour costs

For franchised service providers, the main concern is the variable cost of labour. Analyze your labour and fixed costs to ensure you're not losing money on each hour of chargeable service. If you are, you'll eventually have to make cuts.