Is the US in a recession? That depends on who you ask. Some economists believe we are already experiencing a recession, while The White House would prefer not to use the term.
The National Bureau of Economic Research calls a recession “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Forbes describes it as a prolonged period of an economic downturn that is substantial and extensive, lasting six months or longer.
A decline lasting two consecutive quarters in the gross domestic product is considered an economic recession. Recovery may take months, even with a short recession. But they do not last forever, even if it seems that way.
Small businesses are particularly vulnerable. Because they’re small and flexible, they’re more likely to be strained by ups and downs in the economy. But with good preparation, small and medium-sized businesses can survive a recession.
Prepare Your Small Business For A Recession
The mere hint of a recession makes small business owners nervous. But you can prepare now to help you stay in business and thrive until the recession is over.
- Build cash reserves: Cash is king and an important asset in a downturn. A cash cushion helps small businesses withstand economic instability. Ideally, the cushion should be at least six to twelve months of operating expenses and saved for emergencies. If you can, add more revenue to the cash reserves now by increasing revenue. Begin preparing a skeleton budget in case of a drop in cash flow to make cash last longer.
- Cut and control costs and spending: The best time to start is before a recession happens. Begin tracking your cash flow to keep a better handle on it. Stay on top of accounts receivable and collections. Make decisions based on data using your company’s cash flow information, trends, and forecasts. Use your skeleton budget to help with spending cuts in case revenue decreases. Identifying and reducing any non-essential expenses helps add to and preserve cash. Delaying capital outlays like upgrading equipment or moving to a bigger office space until the economy improves.
- Diversify and expand products and services: If your business relies on one or two revenue streams, consider adding additional streams in case one is interrupted. This worked well for many businesses during the pandemic. Brainstorm about how you can expand your offerings. Focus on target markets that are related to your business. Consider niches that your business can add to its current offerings. One way to add another income stream is to add a digital product to your line, such as a relevant DIY manual.
- Secure financing options ahead of time: If you’re considering applying for a line of credit or business loan, now is the time to start. Once a recession starts, lending standards become tighter, shutting out small businesses. Because getting that loan can take time, the sooner you apply, the sooner you’ll be able to use the funds, with or without a recession.
- Nurture the relationship with your loyal clients: Continue to offer excellent customer service to your valued clients and customers. Diversify your customer base to protect from adverse effects that impact one sector. Keeping that loyalty can help your business maintain needed revenue. Offer discounts or create a loyalty program to reward repeat business. These customers and clients may even bring you referrals to new ones.
- Get to know your suppliers and business partners: Recessions hit everyone hard and will impact them as much as you. Working with your suppliers may mean more favorable payment terms that can help both your businesses manage cash flow during a downturn. You can also align with other businesses that complement yours and expand your marketing reach.
- Expand marketing: Many businesses cut out marketing during a recession, but that’s counterproductive since there are lower-cost options. Digital marketing such as Facebook or other social media ads, content marketing, email newsletters, or blogging, are ideal ways to keep in touch with your current customers and get in front of prospects and leads.
- Automate your processes: Take advantage of the technology you have or other options available to help increase your company’s efficiency. Does your CRM or payroll system have functions you’re not using? Learn what’s available and what you already have that can add automation to your operations and reduce time spent on admin tasks.
- Maintain flexibility: It’s no secret that customers become more price-conscious during economic downturns, especially with inflation as high as it is now. So be ready to change your product or service offerings accordingly, along with your pricing. Can you offer different tiers of services or a lower-priced product? If you don’t, you could be priced out of the market.
- Monitor economic and industry trends: Keep abreast of the economy and trends within your industry when making decisions that affect you and your small business.
What About Layoffs?
Whether it’s a recession or not, there’s a lot of uncertainty. Many employees see layoffs coming as soon as “recession” becomes a discussion point. Small businesses don’t have many employees, and labor costs can be high. But that doesn’t necessarily mean layoffs.
Morale may decline because your team doesn’t know if they should seek stable opportunities. This can also affect productivity. Maintain strong communications with your employees so they don’t jump to incorrect conclusions.
Your employees can also offer input, especially those on the front lines of the business. They can make suggestions to reduce expenses and increase savings.
Extra employees may have to be let go, such as holiday hires. Outsource functions like payroll and HR instead of full-time employees. But cutting your high performers can negatively impact the business while trying to weather the downturn.
Bonus: one way to reduce your telecommunication costs is by switching to a VoIP telephone system. VoIP offers a wide range of features for less than a hosted PBX system with great flexibility.
Contact Press8 Telecom today to discuss upgrading your small business phone system to a new, flexible VoIP system for less money than a traditional analog phone system. We’ll give you a free quote on the system that works for your company.