Petr is the founder and CEO of Invoice Home, an invoice generating platform designed for small businesses, freelancers and entrepreneurs.
If an economic downturn happens tomorrow, will your small business survive? During a recession, businesses can anticipate encountering financial and operational challenges due to decreased consumer spending, increased price sensitivity and shifts in market demand. For those not familiar with what constitutes a recession, it’s defined by the National Bureau of Economic Research as a “period of significant decline in economic activity” that lasts longer than a few months.
Navigating rapid economic shifts requires agility, strategic thinking and a customer-centric approach. Whether a recession is projected to impact your business or not, proactively preparing for one is a strategy that can benefit any small business, regardless of industry. With that in mind, here are six ways I have found to be effective in helping a small business stay the course and prepare for a recession.
1. Routinely conduct revenue projections.
For any small business, long-term success largely depends on how well your cash flow is managed. With the threat of a recession at our doorsteps, now is the time to guarantee your business is operating at its peak, allowing you to have enough cash flow to overcome any hurdles. Conducting revenue projections enables you to budget and account for unexpected expenses and avoid the need to accrue additional debt during difficult times.
How well you can generate adequate cash to meet your day-to-day business needs and manage it properly will only be heightened amid a recession. With proper cash-flow management, you can more easily pay your employees and buy the goods and services needed to run your business smoothly.
2. Invoice promptly and consistently.
Ensuring a consistent flow of income is vital for any small business, but during a recession, this task becomes essential for safeguarding your company’s cash flow. Consider creating an established collections process or procedure to help maintain smooth financial management during a recession. For example, cloud-based platforms designed for invoicing can help you create, track and manage your invoices more efficiently, reducing the chances of missing or forgetting them. (Full disclosure: My company offers this service, as do others.) Some of these platforms allow you to automate recurring invoices, which can help you save time and ensure consistent client billing. After all, delayed invoices lead to late payments, which could negatively impact the health of your business’s financial position.
3. Renegotiate long-term vendor agreements.
As market conditions change and the discussion around a potential recession grows, reviewing your existing contracts for cost savings can be a strategic approach to improve your business’s financial health. Be proactive by contacting your established vendors to initiate discussions for renegotiating pricing or terms that align better with your current needs.
Vendors can vary greatly depending on the business, so don’t be shy about examining all of them: trucking, linens, equipment maintenance, contract staffing, trash removal, etc. The goal is to figure out which vendors are able to meet you halfway. This approach can help you avoid potential price hikes for goods and services and protect your bottom line. Just remember that keeping your prices competitive during tough times, when your customers are feeling the same pain, can earn you their loyalty long after the economy improves.
4. Find new business efficiencies.
In addition to renegotiating with your key vendors to lower your operating costs, you can also look for ways to run the business more efficiently in hopes of improving overall performance. Say your business receives weekly deliveries of non-inventory supplies or services; you might look into extending the frequency from one to two weeks or even monthly in the case of some items. Perhaps there are opportunities to shorten check-ins at your place of business by adding an online button to your website. It may cost you a monthly fee, but it could also save you a bundle by freeing your employees to work on other activities without negatively impacting the customer experience. Recessions often become a golden opportunity for businesses to implement time-saving technology and rethink their business operations to improve overall performance.
5. Maintain marketing efforts.
While your initial instinct may be to eliminate your marketing plan as a cost-cutting measure, scrapping key parts of your marketing strategy could jeopardize your long-term growth plans and credibility. Instead, review and optimize your strategy to make it more cost-effective. Consider looking into alternative marketing channels, creating targeted campaigns and leveraging digital platforms that offer cost-efficient ways to reach your target audience.
Another strategy is to focus on deepening your relationships with your current customers by exploring ways to promote cross-selling and upselling opportunities. It’s often wiser to grow your revenue with your current customers rather than spend more money seeking new ones. Continued marketing can ultimately signal stability to your customers and strengthen their loyalty, resulting in an easier post-recession transition.
6. Have more than one backup plan.
As a business owner, establishing a contingency plan can offer protection against economic uncertainty and help you prepare for various scenarios. In most cases, having one backup plan will suffice; however, given the unpredictable nature of a recession, relying on a single backup plan may not provide enough assurance. Creating multiple backup plans allows your business to pivot and continue operating with minimal interruptions. For example, planning for higher-than-expected inventory costs can allow you to more quickly source lower-cost options or figure out a pricing strategy that passes less cost to your customers. In short, coming up with a Plan B or C can allow your business to navigate sudden and unforeseen changes during a recession.
Recessions are a part of the economic cycle. As a business owner, it’s important to be prepared to make adjustments so you can weather the storm of a prolonged economic downturn. If you analyze market trends, closely monitor consumer behavior and explore cost-effective marketing techniques and operations technologies, you can emerge stronger than ever on the other side.
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