If you’ve owned a small business in the past 20 years, you’ve likely experienced the direct effects of at least one recession. From the collapse of the internet at the turn of this century to the housing-led Great Recession in the late 2000s and the pandemic-induced recession in 2020, small businesses across the United States have had to deal with several major economic upheavals.
In the middle of 2022, small business owners face the prospect of another downturn. while the The United States entered a technical recession On July 28 after two consecutive quarters of negative GDP growth, the The current debate among economists It is whether the country is in fact in a complete recession or if the worst is yet to come. Regardless of any technical definitions, there is no doubt that the country is experiencing an economic slowdown that leaves small businesses especially vulnerable.
With the threat of a recession looming, how can small businesses protect themselves? For small business owners, it’s time for their businesses to resist a recession: Recession is an inevitable part of the economic cycle, and the question is not. if but when Next will hit.
Having a recession-proof small business strategy is essential in these challenging times. This article provides a guide to help business owners protect their business from recession and protect themselves from the risks of another economic downturn.
Small businesses worried about recession
Several surveys released over the past few weeks have indicated that small business owners are very concerned about the possibility of an upcoming recession.
For example, the latest results of the CNBC/SurveyMonkey Small Business Quarterly Survey showed that Small business confidence has fallen to a new all-time low due to inflation and stagnation fears. Confidence scores recorded among small business owners were the lowest since the survey began in 2017, with 38% citing inflation as the biggest threat to their business. These results are in line with the results of Embroker 2022 Startup Risk Index Report26% of startup founders identified inflation as the number one external risk their company faces.
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As reported by ZDNetAnother survey recently showed that nearly half of small business owners fear a recession before 2022. The results suggest that small business owners are entering the second half of the year with a high level of anxiety. These feelings are more pronounced in Goldman Sachs report With 93% of small business owners expressing concern that the United States will enter a recession in the coming months. The majority of companies surveyed said they believe the country is headed in the wrong direction. Similarly, a survey by UpCity and Pollfish showed that 80% of small businesses in the United States Worried about the next recession.
Although slightly different, these results clearly demonstrate the general sentiment that affected companies large and small alike during the year. Businesses across the country are facing a host of problems that are creating the perfect storm for a recession. From persistently high inflation and rising interest rates to the ongoing effects of war and other geopolitical conflicts, there is no shortage of things to worry about.
Why Small Businesses Are More Vulnerable During a Recession
While an economic downturn affects everyone, small businesses are especially vulnerable to the effects of a recession. Unlike large corporations, many of which benefit from large profits and privileged access to financial and credit markets, small businesses often do not have a financial safety net to help them offset the pain of a recession.
Small businesses also face challenges due to changes in the behavior of their customers during a recession. People tend to buy less and consume less during economic downturns, which results in lower demand for products and services offered by small businesses, especially those in niche markets. At the same time, customers may take longer to pay for products and services, which negatively affects the cash flow of those businesses.
Even worse, many small business owners struggle to access much-needed credit during downturns, making it difficult to keep their businesses going without any infusion of capital.
It is no wonder, then, that business owners are concerned. This is also why they need to plan ahead and protect their business from stagnation in advance.
Strategies to Prevent Your Small Business Recession
Owning a recession-proof small business requires a lot of careful planning and preparation. Here are 10 steps to creating an effective stagnation prevention plan for your small business:
1. Manage your costs and cash flow
The most effective way to save business expenses during a recession is to manage your costs and keep track of your cash flow. This will include reducing spending where possible by carefully managing your expenses. Can you cut back on overhead? Is there excess stock? Do you need to offer shorter payment terms to customers? Are there ways to encourage your customers and clients to make early payments or even prepayments? Consider these questions as you prepare to make any decisions about the state of your business expenses.
2. Create a profit plan
If your business is profitable, ask yourself which of your existing business operations may need to be scaled back during the smaller times in order to remain profitable. For owners whose business is not profitable, it is necessary to look for ways to adjust business practices and work towards profitability, because a recession could plunge the company permanently into the red. Having a profit plan will help keep you motivated and focused on your core priorities.
3. Securing financing in advance
If you are able to secure financing on reasonable or even favorable terms, do not wait for a recession to occur before taking advantage of this opportunity. One of the first effects of the recession is that lending and credit standards begin to tighten, so that small business owners can find themselves denied any financing opportunities. Also remember that financing takes time: whether it’s a bank loan or building up your personal savings, you need to get started as soon as possible regardless of whether a recession is around the corner.
4. Have a risk assessment strategy
Small business owners should assess the risks their business faces as frequently as possible, preferably on a daily basis. You should make plans to track any changes in economic conditions that will affect you, and to determine if you have the tools to respond to those changes effectively. Does your business have a risk assessment plan for dealing with rising interest rates, for example? Small business owners should always be able to interact in real time without delaying important decisions. Don’t let events get ahead of you.
5. Take care of your employees
Your employees are critical to the success of your business, and this is especially true during a recession. Remember that stagnation is as much stress on your employees as it will be on you. Stay in touch with your employees and inform them of any important business decisions that will affect their well-being. Consider investing in additional training to keep them adaptable and agile in preparation for any downturn. If you have to make the painful decision to resort to layoffs, consider implementing An effective and conscious anchoring strategy.
6. Taking care of customer relations and customer relations
Make sure you have the resources to dedicate to your valued customers and clients, to maintain their loyalty and maintain their trust. Nurturing these relationships may include being more selective about the type of clients and clients you want for your business. In the medium and long term, it is critical for small businesses to invest in fewer clients and trusted clients and they will stay with you through the downturn. You need to be able to identify your best clients and existing clients so that you can invest in those relationships. They will be your best ambassadors, and may help attract new clients and clients to your business.
7. Communicate with your business partners and suppliers
Recessions affect everyone, and they will affect your partners and suppliers equally. That’s why small businesses should be in touch with their partners and suppliers, so that they can devise strategies that can jointly help protect their business. Having such discussions may also persuade you to look for other partners or suppliers if your current partners are not likely to help you stay afloat during a downturn.
8. Create a unique brand, message and products
Small businesses need an effective brand and messaging strategy to remind their customers and clients what it is all about. What are your values as a company? What makes your work special? What types of products and services do you offer that your customers cannot get anywhere else? Business owners have to give their clients and customers a reason to stay with them during a recession rather than looking for cheaper alternatives. Being recession-proof requires keeping your customers and clients happy and loyal.
9. Diversify your products and services
At the same time, small businesses must look for ways to expand their product or service lines and create multiple revenue streams. One effective way to diversify your offering is to make your products and services available at different price points, to give your customers and clients more choices and thus increase your revenue. This diversification will help your business to be more flexible and adaptable before a recession.
10. Get the right insurance coverage
Getting the right insurance coverage is one of the most effective ways for small businesses to be recession-proof. Recessions tend to increase the number of risks and challenges for small businesses, so having the right insurance policies becomes even more important. For small business owners looking to get the right coverage, Embroker The Ultimate Guide to Small Business Insurance It provides a comprehensive overview of all the policies you’ll need to protect your business.
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The Takeaway: Helping Your Business Get a Head Start
Small businesses are facing an unprecedented period of uncertainty, as several economic headwinds appear to push the economy into recession. So having a recession-proof small business strategy should be a priority for any business owner right now. By implementing the strategies outlined in this article, business owners can plan ahead for a possible recession while preparing for whatever outcome may await them in the near future.
Ultimately, stagnating resistance will allow your small business to get a head start on your competition and can also help you level the playing field over much larger businesses. In this way, preparing for a recession can help small businesses remain adaptable and competitive.