As a possible recession looms, small businesses may be wondering what they can do to be successful in yet another uncertain time.
Moving forward, there are three key areas of a business — employees, cash flow and operations — to focus on for the company’s long-term health. See how your small business can succeed during a recession.
How To Stay Staffed
Brian Trzcinski, director of business market development with MassMutual, said business owners have to figure out ways to maintain staffing in a recession.
Coming out of the pandemic, staffing issues were the No. 1 business concern. This is both in terms of losing staff and the ability to rehire staff. Many businesses, already running leaner than they’d like to be, must be able to attract and retain top talent when cash flow is tight.
How can they do it? Trzcinski recommends offering intangible perks, such as flexible scheduling that allows employees to take time off or work remotely. It is essential for businesses to not only offer intangible benefits but to know how to motivate employees outside of monetary compensation.
It’s also important to offer financial perks, said Nate Schelhaas, SVP at Principal.
Schelhaas recommends holding listening sessions to discuss any changes in benefits programs, emphasize transparency and open lines of communication. Explore diverse benefits options, like HSA and FSA offerings, student loan repayment assistance, disability insurance and accessibility to financial planning advice.
Another key area is managing cash flow. Now more than ever, businesses must track the amount of cash coming in and out of the business every month. As business owners track cash flow, keep the following considerations top of mind for navigating an economic down period.
What Do the Next Five Months Look Like?
The next five months may require business owners to revise their plans. This could mean redoing a business plan and updating financial forecasts, looking at whether pricing needs to change due to inflation or supply chain issues or changing consumer interests and updating financial forecasts appropriately.
“Every business is dealing with inflation and supply chain issues,” said Elizabeth Magennis, president of ConnectOne Bank. “Many changes have to be made to their business plans when uncertain economic times arise.”
Who/What Is Most Important to the Business?
Prioritize the relationships you cannot lose, such as those with lenders, vendors and customers.
Schelhaas said to keep solidifying relationships with your key customers. This, in turn, could lead to continued business throughout a recession.
“Understand how the downturn is impacting them and how your services can help mitigate some of their current pain points,” Schelhaas said. “A personalized note, phone call or meeting goes a long way in reassuring your customers you value and appreciate their business.”
Who/What Can Help Ease the Burden?
If you need to find cash, the fastest way to do it is by talking with your key customers and suppliers. Trzcinski said to make sure customers will be paying on time and, if possible, ask whether they might accelerate payments if given a better deal. For suppliers, ask whether terms are negotiable from, say, Net 30 to Net 60.
Businesses also can reach out to banks and credit card companies for support. As interest rates rise, now may be a good time to inquire into additional lines of credit.
“Understand your financial situation and secure additional financial support to be used when needed,” Schelhaas said. “It could become more expensive to secure open lines of credit that fit the needs of your business, so it’s important to prioritize additional capital now.”
Do You Have an Emergency Fund?
If your business doesn’t already have it, now is a good time to establish an emergency fund. This fund should be treated the same way you would create an emergency fund for your personal finances, with three to six months of business expenses.
“Remember we are in uncharted waters,” Magennis said. “It is important to be ready for rainy days ahead by building a sufficient cash reserve to help with any struggles moving forward, as well as for potential opportunities.”
Finally, business owners should gauge their company health by analyzing operational efficiencies.
The good news, Trzcinski said, is many business owners probably already did this during the pandemic. But there may be ways to go even further. Explore these available options:
- Build a recurring revenue model. Consider using subscriptions or autopay. Doing this makes customers more sticky when it’s most important.
- Focus resources only on products and/or services your customers want the most. This brings the most revenue, and the best margins, into the business.
- Diversify client and supplier relationships. “Remember everyone is going through the recession and dealing with the same challenges,” Trzcinski said, “so not being reliant on a few customers or suppliers is critical.”
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