Is Your Small Business Ready for a Recession?

Small businesses continually rise to the challenge, responding to diverse economic conditions. As if managing a venture doesn’t already test your entrepreneurial mettle, your owner/operator position also requires flexibility reconciling economic events and global conditions, beyond your control. From sudden shifts such as those driving the economic meltdown a decade ago, to local trends influencing demand for your products, commercial conditions are always in flux. Your success responding to economic challenges can make the difference between riding a wave of sales success and entirely missing the boat.

Despite positive economic indicators in many analytical areas, US small businesses may not be reaping the rewards of a thriving economy. With trade uncertainties clouding the picture, things could get worse, leading some observers to predict the US is on the verge of a recession. Though you can’t foresee the future, you can take a proactive approach, preparing your small business for an economic downturn. A recession contingency plan hedges against catastrophic consequences and can help you weather the storm during periods of economic instability.

Surviving a Recession

Higher prices and restrained consumer spending are almost never good news for small business, which often lack the deep resources required to ride out periods of poor economic performance. A US recession isn’t a foregone conclusion, but it is a realistic possibility for which to prepare. USA Today recently shared survival tips for small businesses facing deteriorating economic conditions. Though some of the recommendations are particularly helpful when the economy turns south, the sound business suggestions aren’t necessarily reserved for recessionary conditions.

• Expand Your Client Base – Bringing on new business helps your bottom line, regardless of global trends impacting the US economy. However, expanding your client base is particularly important when your economic niche shows signs of slowing. Enhancing word-of-mouth promotion is one way to invest in your business, without spending money. Networking at a co-working space, for example, can help generate leads and make useful contacts in your field. In addition to leveraging professional relationships within your niche, you may also have success with direct client referrals, enlisting the help of your existing customers to bring new business to your books.
• Streamline Operations – It’s easy to spend beyond your business budget – particularly during periods of prosperity, when pinching pennies isn’t a top priority. However, when recession strikes, you may need to cut costs, in order to survive. A close look at your business spending habits and history may reveal savings opportunities and/or potential for greater operational efficiency. For results you’ll feel in your bottom line, start with big-ticket spending such as facilities payments and other high-dollar expenses. Is it possible to save money by relocating? Do you pay too much for communication and connectivity? Are you floating perks your business can no longer afford? Ideally, answering these and other questions can help you streamline spending, before you’re in the throes of full-on recession.
• Prepare a Line of Credit – Even in its early stages, a recession can impact company cash flow. While the power of positive thinking goes a long way – conditions will improve; a half-full glass won’t pay your bills. In much the same way an equity line of credit provides personal financial relief for homeowners, opening a commercial credit line establishes a vital financial safety net, should recessionary pressure disrupt your finances. The money can be used to cover everything from payroll expense to new inventory.
• Expand Your Goods and Services – Investors understand the value of diversification; the same principles apply to business interests. If you’re worried about a downturn, adding to your professional repertoire may provide comfort, as well as additional sales, during hard times. Doing one thing extremely well may be adequate when business is booming, but putting all your eggs in one basket leaves you vulnerable in a single sector. Without losing sight of your primary products and services, adding complementary offerings creates a supplemental income stream and spreads risk across multiple sources of revenue. With multiple balls bouncing under a single business umbrella, you have more options to pursue, should one of your specialties falter during a recession.
• Put Receivable on a Fast Track – Cash flow slowdowns are particularly unnerving during prolonged recessionary periods. When your commercial finances take a hit from economic recession, timely payments from clients are essential. Under some circumstances, you may wish to reevaluate billing terms, with an eye toward speeding up payments. Extending net 30-day, 60-day and even 90-day payment terms may be common practice, under normal circumstances, but does your cash flow suffer as a result of the generous terms? Surviving a recession relies on prudent, though sometimes difficult, decision-making. Among the many tough choices sparked by an economic downturn, striking new terms with your clients may be a necessary concession, in order to prevail under difficult conditions. Whether you institute up-front payment terms for new customers or reduce existing payment grace periods, putting receivables on a fast track provides cash flow relief.

Some economic analysts point to current conditions as a harbinger of upcoming recession. Whether or not hard times are in fact brewing, small business owners can prepare for the contingency. If you’re worried about a pending recession, or simply want to tighten up your business finances, just in case, adopting these strategies can help your small business survive economic turmoil.