How Small Businesses Can Prepare For a Recession
With many signs indicating the United States economy has entered into a technical recession, small-business owners must take swift action to make their companies recession resilient. Follow these steps to ensure your small business’ long-term health and success.
Here It Is: Our 2022 Small Business Spotlight
Read More: 7 Things You Should Never Do When Planning For Retirement
Invest In Employees
How can a small business maintain its staff, continue hiring talent and reassure all existing and incoming employees they have job security? Amid a recession, small businesses should be able to provide intangible perks, like flexible scheduling and other perks that motivate staff beyond monetary compensation, and financially focused benefits designed to invest in employees.
Nate Schelhaas, SVP, head of life protection solutions, US insurance solutions at Principal, recommends over communicating and personalizing benefits. Explore diverse benefits options, like HSA and FSA offerings, student loan repayment assistance, disability insurance and accessibility to financial planning advice. Hold listening sessions to discuss any changes in benefits programs and emphasize transparency and open lines of communication.
Take Our Poll: Do You Tip For Service?
Focus 10% More Time on Activities Driving Revenue
Small-business success coach Kelly Mosser said now is not the time to shift your business model into something entirely new or higher risk. Use this time to focus on tasks directly driving sales.
“Start doubling down on your core competencies: the products and services that have historically driven the most revenue for your business and have strong proof of concept,” Mosser said. “Focus 10% more of your time on revenue driving activities.”
Track and Manage Cash Flow
If you haven’t already started, track the amount of cash flowing in and out of the business month-over-month. Revise business plans to update financial forecasts, look at whether pricing needs to change and update financial forecasts.
Small businesses in need of more cash may utilize a few strategies. Talk with your key customers and suppliers. Make sure they are paying on time. If possible, business owners may ask if suppliers might accelerate payments if given a better deal. If your small business needs an additional line of credit, prioritize this need now. Reach out to banks and credit card companies to secure financial support.
Finally, review any discretionary business spending in your company budget. If there are software subscriptions you don’t use but still pay for, cancel these subscriptions. Reevaluate the purchases your business needs now versus nice-to-haves that may be put off until a later date.
Build or Refill an Emergency Fund
Does your company have at least three to six months’ worth of business expenses in an emergency fund? Great! If not, start building this fund. If yes, but you dipped into the fund and haven’t replenished it, use this time to pay yourself back and rebuild a sufficient cash reserve.
Utilize Organic Marketing Strategies
“If you anticipate you’ll be scaling back your advertising budget in the event of a recession, now’s the time to commit to a consistent strategy on social media,” Mosser said.
Small businesses can leverage plenty of free marketing strategies for their companies, including guesting on popular, relevant podcasts, earning local media coverage and establishing themselves as thought leaders within their industry by guest blogging with relevant media outlets and writing and sharing content that resonates on LinkedIn.
Analyze Operational Efficiencies
Brian Trzcinski, certified exit planning advisor and director of business market development with MassMutual, recommends small businesses explore options such as building a recurring revenue model (via subscriptions or autopay) and diversifying client and supplier relationships.
Similar to Mosser’s advice on focusing 10% more on activities driving revenue, Trzcinski said small businesses should focus their resources on products and/or services most wanted or needed by customers. This action will bring the most revenue, and the best margins, into the business.
Prioritize Valuable Relationships
Which relationships are among the most important to your business? Are these relationships with lenders, vendors or customers? Identify key client relationships and work to strengthen them.
Schelhaas recommends sending your key clients or customers a personalized note, calling them on the phone or having a quick meeting together. Use this time to tell them how much you value and appreciate their business, learn how the downturn is impacting them and find out how your services can help mitigate some of their current pain points. Emphasis on strengthening these relationships may lead to continued business throughout a recession.
More From GOBankingRates