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How Small Businesses Can Prepare for a Recession

Though individuals and businesses across the country are still recovering from the financial crisis and housing market crash of 2007, many are saying that another recession is coming. Predictions show it won’t be as bad as the Great Recession, when almost 200,000 small businesses failed between 2008 and 2010, but it’s still a matter of concern.

There’s no way for you to stop a recession, but there are a few initiatives that will help your small business weather the storm successfully.

What is the Definition of a Recession, Exactly?

The National Bureau of Economic Research defines a recession in a fairly straightforward way…

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

While a recession is not a positive thing, it’s not necessarily as much gloom and doom as it sounds. Any time the economy is not growing towards a peak, it’s in a recession. It may be on a downward trend, but it isn’t crashing. At least not anytime soon.

Our unemployment rate is currently strong, nothing like the 25% of the Great Depression of the 1930s or even the 10% of the Great Recession of 2007. In fact, at 3.5% as of August 2019, it’s at its lowest since 1969. [Source]

Factors that May Cause a Recession 

Trade War

The market uncertainty is a major cause of concern. Not only are businesses hurting from raising tariff prices, stocks are fluctuating more than usual as economists struggle to make predictions. Refer to our earlier article about the Trade War for more information and this template for creating a price increase letter.

Business Investment Slowdown

Another indicator of an imminent recession is a slowdown in business investment. When companies hold back from funding because of fear or other factors, this alerts economists of potential downturn.

Yield Curve

The yield curve, a measure ambiguous to most non-economists, is another factor showing future economic stability. Every recession in the U.S. in the last 60 years has been preceded by an inverted yield curve. The yield curve inverted in March of 2019.

So what can you do to protect your small business?

Enough about what a recession is, what can you do about it? We have some tips below to help you prepare your small business for a recession. 

Remember: Cash is king!

We may sound like a broken record when it comes to cash flow, but we can’t help it because Cash is King. The famous mantra is relevant to all small business owners. Monitor your cash flow with incredible scrutiny.

Reserve Funds

A major cause of small business failure is lack of reserve funds. Don’t go bankrupt because you didn’t have an emergency fund of backup cash. Do what you can to be prepared so when surprises come, they won’t put you under.

Shorten Payment Terms

If you offer payment terms to customers, consider shifting from n60 or n30 to n15 or a discount if paying up front. In the event of a strain on your business, you want that cash in the bank promptly.

Inventory Scrutiny

A big part of cash flow is inventory. You don’t want cash held up in stagnant inventory. Be tough and frugal when it comes to purchasing. Keep stock levels as slim as you can without giving up potential sales.

Access your Savings Dashboard

Bolster your bottom line for a rainy day. Our savings team is standing by to help you optimize your business with your member benefits

What else you can do to prepare for a recession (continued)

Make Cuts Where You Can

This doesn’t necessarily mean firing employees and selling possessions. But you do need to evaluate where your business is paying anything extra. Eliminate the free soda policy for employees, limit the frequency of janitorial services, or move to a space with a smaller footprint. Call vendors and ask for discounts – and don’t forget to take full advantage of your member benefits (above).

Seek Out Other Financing Options Before It’s Too Late

When the recession hits, small businesses will struggle to secure financing options. Banks will not be interested in loaning money to failing businesses. Start trying to secure a business line of credit now while things are good.

Keep on Keeping On…and more! Tips for Boosting Your Offering

You want to curl up in your office and hide until the worst of it is over. We get it! But instead, step up your offering. Add products or services that broaden appeal to a wider audience. Brainstorm ideas to elevate the in-store experience or improve your customer service. Create new programs for financing, change the mentality of your salespeople, or rework your mission statement to reinvigorate morale and resonate with customers.

The worst thing is to do nothing. With your thinking cap on and a new focus to revitalize your offering, see what big ideas you can incorporate at little to no cost.

Focus on Customer Engagement, Social Media, and Marketing

One of the best things about social media is that it’s cheap. That’s not to say it’s all free.  There are monthly subscriptions for apps that monitor engagement. And there’s basically a black hole of opportunities with Facebook and Instagram ads. But overall, social media creates a way to brand your company, build a customer base, and interact with followers in a low-cost way. 

As times get tough, you cannot give up on your social presence. Keep posting photos, continue blogging, and stay active on LinkedIn. As a business, you need to show a steady and engaging persona on social media to confirm your existence and relevance.

Don’t Panic

Along with everything above, try not to panic. It’s not uncommon that just the threat of a recession causes consumers to freeze spending, housing prices to plummet, and investor funding to halt. By overreacting, these actions actually exacerbate the oncoming recession.

Stay calm and follow these tips to prepare for a recession. With smart decision-making and prudent money management, your small business can weather the storm.