How to Prepare for a Recession
1. Cut Your Expenses
You’re likely spending more than you need on rent, utilities, marketing, payroll, inventory, and other business expenses. Now is a good time to take a close look at your expenses to determine where you can cut back.
Maybe there’s a more affordable office building across town. Or perhaps you can negotiate with your suppliers and get a discount on inventory. Get creative and think about how you can run smoothly at a fraction of the cost.
2. Don’t Stop Marketing
Contrary to popular belief, promoting your products and services during a recession is essential. With strategic
marketing and creative messaging, you can build brand awareness and develop a relationship with potential customers.
While they may not buy from your business initially, there’s a good chance they’ll invest in your offerings in the future. Marketing is also essential if you want to retain your current customers and ensure they continue choosing you over your competitors.
3. Review Your Pricing Model
There’s no denying that your customers will want to spend less during a recession. Review your products and services to determine if you can cut costs and pass the savings on to them. One way to do so is through a subscription model that gives customers more bang for their buck and encourages retention. You can also offer your customers bundle deals or perks, such as free shipping or gift wrapping.
4. Take Control of Your Invoicing and Collection
It’s not uncommon for businesses to be slower with vendor payments amid a recession. Even though delaying payments to preserve cash flow is tempting, doing so can cost you and give you an inaccurate idea of how you’re doing financially. All of the payments you owe will eventually sneak up on you.
In addition to paying your vendors on time, be sure you have a solid collections program in place. Create well-written contracts, send invoices promptly, follow up with customers regularly, and impose fees for late payments. While payment terms can vary, 30 to 60 days are standard.
5. Get Rid of Problem Customers
Not all customers are created equal. Some will be more of a hassle and expense than others. Review your customer base and exit contracts with those who ask for extra, often complain, pay late, or underpay.
If you decide some customers aren’t worth it, review your contract terms so you can safely transition out of the business relationship. You can replace them with better, more profitable customers worth your time and effort.
6. Build an Emergency Fund
A
business emergency fund is just as important as a personal emergency fund. Build a cash reserve that you can tap into during difficult times. The reserve’s size will depend on factors like your industry, risk tolerance, and expenses. You can work with an accountant or bookkeeper to understand your financial statements and determine the ideal size for your unique business.
7. Re-evaluate Projects
Chances are, your business has a list of projects and strategic initiatives to complete. Re-evaluate the list and determine which ones you should delay or cut altogether. You’ll find yourself in a difficult situation by investing resources into a project that won’t yield results in a recession. You’ll find that it makes more sense to complete some tasks at a later time when market conditions improve.
8. Consider Financing
Small business loans may be just what you need to cover your expenses and keep things running smoothly during a recession. There are many options, such as term loans, lines of credit, equipment loans, and merchant cash advances. Conduct research and compare products to find the right financing solutions for your particular needs.
9. Look for Opportunities
A recession can open the doors to opportunities you may have overlooked before. If you notice your competitors are scaling back on marketing, now might be the time to increase efforts and capture more of the market. If your business relies on many repetitive, manual tasks, now may be the time to automate them. Exploring new markets and evaluating new vendors is also a good idea.
10. Be Optimistic
Eventually, the economy will improve, and things will return to normal. Until then, it’s essential to think positively and use these tips for a recession. Realize that most businesses are struggling, and your hard work and determination will eventually pay off.
Conclusion: Small Business Success is Possible in a Recession
While running a business in challenging economic conditions is no easy feat, it’s certainly possible. With some business planning, flexibility, and creativity, you can prepare for a recession and meet (or even exceed) your goals.