Small Business Advice

How to prepare your business for a recession

An economic downturn can put major stress on any business. Learn how to recognize the signs of an upcoming recession and what to do to prepare your business.

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An upcoming recession can be extremely nerve-wracking for small business owners. A damaged market can hurt all industries, and small businesses can really suffer during a recession if they’re not prepared.

Fortunately, being prepared ahead of time will help your business stay afloat and even thrive during a recession. 

Use these tips below to prepare your business for a recession in case you need to make ends meet if and when that time comes.  

​​1. Watch for recession warning signs

There are a number of warning signs whenever we are near a recession. These are economic indicators that can trigger or signal an economic downturn. Historically, most worldwide recessions were preceded by these economic warning signs. These include:

  • Stock market downturns
  • Rises in unemployment
  • Gross Domestic Product (GDP) declines over two or more consecutive quarters
  • Decreased output from fulfillment centers and factories
  • Spikes in national numbers for credit and loan debt
  • Decreased mortgage rates
  • Government bodies and/or news outlets talk more about recession

2. Reduce your cash output

It seems simple, but reducing how much will spend will help you put more money towards a recession “safety net” fund. To help reduce your cash output, you can do the following: Some things you can do to help reduce cash output are:

  • Comb through your monthly statements and find expenses your business can live without (products, subscriptions, ongoing payments) without significantly hurting your business in the next year or two
  • If you have a supplier, negotiate better pricing or explore better rates
  • If you have a physical business, negotiate with your landlord for cheaper rent
  • Save more cash by using a dedicated business bank account that provides perks, cashback, and rewards to help you save money
  • Trim your payroll output, cutting some hours where needed
  • Put off any expensive purchases if they are not 100% necessary for your business operations
  • Track your expenses for tax season write-off purposes

3. Prepare a financial recession strategy 

An action always starts with a plan. Put your recession strategy onto paper. Make goals for 6 months, 12 months, 18 months, and 24 months ahead. Always consider the “worst case scenario” as well as the “best case scenario” when writing your business plan.

Plan your financial expenditure for your bottom line to keep your business running. Find places, as listed in #1, where you can save cash.

4. Prepare a personal stress plan for yourself

Not all stress is entirely business-related. Make time to take care of your own stress as well. Make a plan to handle your personal stress. 

Running a small business is already stressful – and running one during tough times is even more stressful. Be good to yourself along the way. Make a commitment to work a schedule and value your personal time off to get some exercise, connect with family and friends, and decompress to focus on your mental health and wellness. 

5. Cut your unprofitable products / services 

Review your products with your team or even your finance department. This will help identify any unprofitable products or services. These can eat through your cash quickly and take a lot of time, effort, resources, and money to grow. It may be worth considering entirely cutting out unprofitable products.

The only exceptions to this rule are products or services that are strategic. These items are sales that generate additional revenue on your other products/services to compensate for the loss, or somehow bring alternative cash flow into the business without being an entire loss of revenue. 

6. Invest in marketing

If you have some savings that you want to invest into the business, marketing and sales growth are probably the best areas for you to spend on your business. Marketing helps build a brand and awareness about your products or services, to help make your business stand out to potential customers.

Marketing can help push a bigger return on investment. The more your clients know about your services, or customers know about your products, the more likely they are to reach out to your brand when they’re in need of that type of product or service. 

You can even start somewhere simple, like an ongoing newsletter or email campaign for your clients or customers. According to Litmus, the average return on investment from email marketing stands at 4,200% or 42x. Invest into some email marketing tools or a marketing specialist who can help get your campaigns up and running to prepare for a recession.

Some other easy marketing ideas include:

  • Setting up your website
  • Optimizing your site for Google search engine results (SEO)
  • Writing a blog related to your products or services
  • Using your social media to reach out to and engage with customers
  • A newsletter via email for your business
  • Use TikTok to get more awareness about your small business
  • Facebook, Instagram, or Tik Tok ads
  • Paid search ads

7. Re-evaluate your ongoing initiatives

As market conditions change, your ongoing projects and strategic initiatives should be re-evaluated. Look at the performance of your projects and understand which ones are no longer meeting expectations. This includes product tests, marketing campaigns, employee layouts, and service projects. Those projects that no longer meet expectations due to market changes should be delayed or canceled until the environment improves. 

Certain initiatives require you to put ongoing cash and investments into them, and if they are not yielding the expected results, you could be wasting valuable cash flow.

Conclusion

While the idea of a recession is worrisome for many small businesses across the United States, being prepared is the best way to reduce its impact on your business. You can future-proof your business by taking the measures listed above. You should create a 6-24 month plan for your business with actionable steps to increase your cash flow and reduce cash burdens. 

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