BY ROBYN GOLDENBERG
Economists have been warning of a recession for some time now as inflation rates continue to be high, gas prices remain above average, and the stock market roller coaster has some investors spooked. Meanwhile, the Federal Reserve has been attempting to tamp down the heated economy by raising interest rates, the most recent of which happened in mid-December 2022.
According to recent surveys, small-business confidence has dipped dramatically, especially among professional forecasters and company executives. If your business is feeling the effects of the recession (or soon-to-be recession), or you just want to be smart about preparing for inevitable, the good news is that there is plenty you can do to protect your company now.
1. Review Your Expenses and Cut Costs Where Possible
This is obvious, but reviewing your expenses and seeing where you can cut out unnecessary costs in difficult economic times is essential. Most of us had to do deep cutting in 2020, but reining in expenses is something we all need to be doing consistently. This may include renegotiating contracts, switching to cheaper suppliers, or reducing staff hours (which might not be a reality right now for companies that are still understaffed and overbooked). Recession-proofing your business by cutting costs wherever possible is the best way to ensure its long-term viability, and reviewing payables regularly will help you identify areas where you may be able to create opportunities for savings and allow you to adapt your business model as necessary. Taking proactive steps to reduce spending can give your business the best chance of weathering the storm during a recession.
2. Increase Your Prices
Your customers will be more than willing to pay (or may not even notice) a little extra for your products or services, especially if they are essential items. In addition, rising living costs mean that your customers’ incomes are likely to be higher, so they can afford to pay more. Of course, you need to be careful not to price yourself out of the market, but a slight increase is unlikely to lose any customers, and it could even result in higher profits/cash reserves for your business. So, if you haven’t increased your prices in a while, now is the time.
3. Focus on Customer Retention
Any business owner knows that acquiring a new customer costs more than keeping an existing customer. Therefore, focusing on retaining customers, especially during a recession, is essential. This may include offering discounts for volume, payment terms, or providing additional services. Whatever you do, ensure you and and your team are doing everything possible to keep your customers happy.
4. Diversify Your Revenue Streams
Varying your income streams is always a good idea. Not only does this make your business more resilient to economic downturns, but it allows you to grow in new directions. There are many ways to diversify your income, but some of the most common include product development, marketing initiatives, and expansion into new markets. Try to avoid sectors that are too closely related, if possible, as many learned during COVID how uneven the recovery was in transportation and travel.
5. Invest in Marketing
Many business owners know marketing is essential for attracting new customers and keeping existing ones engaged. But during a recession, it’s even more important to keep your brand top-of-mind so that when customers are ready to spend again, they think of you first. It’s usually one of the first places that a business owner thinks to cut, but it’s better to shift to lower-cost avenues before stopping altogether. You can implement many cost-effective marketing strategies, such as content marketing, social media marketing, and email marketing. But regardless of your chosen methods, ensure a strong plan is in place. This will also position you for success when the economy rebounds. Don’t hesitate to invest in marketing—it may be the best decision you make for your business.
6. Focus on Delivering Quality Products and Services
Many businesses are feeling the pinch as the economy continues to struggle. It can be tempting to cut corners to save money in tough times like these. However, this is often a mistake. Your customers will notice if you start delivering inferior products or services, and they will be quick to take their business elsewhere. Instead of cutting corners, you should focus on providing quality products and services that will keep your customers returning. This may require investing in better materials or hiring more experienced staff, but it will be worth it in the long run. You can ensure that your business remains successful even during tough economic times by delivering quality products and services.
7. (Re)Build Your Cash Reserves
I don’t need to tell you how important it is to have cash reserves on hand, but there are a few simple ways to start building (or rebuilding) them up. The first step is to take an honest look at the money that’s going out for expenses and identify areas that you may be able to trim. Then, make a point of setting aside a portion of your profits each month to boost your reserves until you have at least six months of expenses saved up. Finally, consider taking out a business line of credit, which will give you access to emergency funds if you ever need them. By following these simple steps, you can ensure you have the cash reserves needed to keep your recession-proof business running smoothly.
8. Reduce Your Debt
If you’re one of the many Americans struggling with debt, you’re not alone. The average household owes more than $8,000 in credit card debt alone and that’s not including education loans, medical expenses, and other unsecured debt. And with the economy in a downturn, it’s more important than ever to get your finances in order. One of the best ways to do that is to start paying down your debt. Not only will you save money on interest payments, but you’ll also be in a much better position if you face other financial challenges. So, if you’re ready to get serious about reducing your debt, now is the time to start making a plan. You can find plenty of resources online to help you get started, and there’s no time to take control of your finances like the present.
9. Get Creative With Financing
If you’re struggling to keep your business afloat, it may be time to look into alternative financing options. Many companies turned to the resources of the Small Business Administration (SBA) in 2020, which offers several low-interest loan programs to help you get your needed funding, but it’s not the only avenue to try. You can also consider state and local programs, which sometimes offer grants and low-interest loans for specific projects. A line of credit is another option that can give you access to cash when needed. Invoice factoring is another possibility: you sell your outstanding invoices to a third party at a discount in exchange for immediate payment. There are many options available, so it’s essential to research and find the one that’s right for your business. With creativity, you can find the financing you need to keep your business running smoothly.
10. Plan for the Worst-Case Scenario
One of the most important things you can do is create a contingency plan. This plan should outline what you will do if your revenue decreases or you have to lay off staff (and we all remember having to do that)—having a program allows you to be proactive and adapt quickly to economic changes. Additionally, it is essential to keep your business flexible during a recession. This means being willing to change your products or services to meet your customers’ needs—consider what ideas you brainstormed when you had literally no business during the pandemic and how that helped your company fight on another day. Don’t be afraid to think outside the box. Lastly, it is crucial to maintain communication with your employees and customers. By being transparent and honest, you can build trust and loyalty among your team and help navigate the choppy seas that we all inevitably face from time to time. [CD0123]
Robyn Goldenberg is Vice President of Strategy Leaders. She can be reached at robyn@strategyleaders.com.