The definition of a recession is “a substantial decrease in an economic activity affecting all aspects of the economy for more than a few months.” Research shows that approximately 81% of small business owners are expecting a recession as interest rates continue to rise to counteract inflation. Many small businesses will not survive this period.
The best way to ensure your business survives is to prepare ahead of time instead of waiting until it hits. In this blog, we’ll outline 10 things you can do to recession-proof your business.
Chances are that you’re spending more than you need to on business expenses such as payroll, marketing, rent, and utilities. Take some time to look at these expenses and make cuts where you can. Consider relocating to a more affordable space in another part of town or negotiate with your suppliers for discounts on inventory.
Don’t Neglect Marketing
When business owners often think about how to recession-proof businesses, they cut their marketing budget. However, you should continue to market your business even in a recession to promote awareness of your brand and build relationships. Even though people may not buy right away, they will likely keep you in mind in the future.
Evaluate Your Pricing Model
During a recession, your customers will be looking for ways to save money. Take some time to review your products/services to find ways that you can cut costs and then pass your savings to your customers. One way you can do this is by offering a subscription that gives customers more value and encourages retention. You may also want to consider offering perks such as free gift-wrapping or shipping.
Continue to Pay Your Bills & Collect Payments On Time
During a recession, it’s easy to be slow with vendor payments because you want to preserve cash flow. However, this gives you an inaccurate idea of how well you’re doing. The payments you owe will eventually need to be paid.
Additionally, make sure that you have a solid collections plan. Your contracts should be well-written, invoices sent promptly, and fees added for late payments. Standard payment terms are 30 to 60 days.
Cut off Problem Customers
Take some time to review your customer base. If you have customers that often complain, ask for extra, underpay, or make late payments, cut them off. However, review your contract terms so that you can safely end the contract without repercussions.
Build an Emergency Fund
Chances are you’ve heard about the importance of a personal emergency fund. A business emergency fund is just as important to recession-proof business. The size of your fund will depend on factors such as your expenses, risk tolerance, and the industry you’re in.
Assess Current and Proposed Projects
Your business likely has a list of projects and initiatives that need to be completed. Take some time to assess that list and determine if there are any that can be delayed or cut entirely. You don’t want to invest resources in a project that is not going to yield results for your business.
Consider Financing Options
During a recession, cash flow is a problem. One way to combat this problem and recession-proof business is with financing. Take some time to consider your options such as term loans, credit lines, merchant cash advances, equipment loans, and more to determine which would meet your needs.
Search for Opportunities
A recession allows you to search for and consider opportunities you may not have before. If your competitors are scaling back on their marketing efforts, it might be a good time to ramp up yours. If your business engages in repetitive manual tasks, consider automating them. You may also want to consider moving into new markets and/or finding new vendors.
Finally, one of the best ways to recession-proof business is by staying positive. Things will eventually get better. Keep in mind that your business is not the only one that is struggling. By implementing these tips, you can increase your chance of survival.
You Can Still Succeed Even in a Recession
Running a small business can be challenging- especially in the face of a recession. Still, there are things you can do to recession-proof your business and increase your chances of survival. If you need help with funding options, contact Dorra Financial Group today.