Recession can be a scary and stressful concept. As with any economy, there will be periods of prosperity and periods of recession or economic decline. Recessions can hit anyone’s financial situation hard, but there are several things you can do as a business owner to maximize your chances of coming out of a recession with as little loss as possible. Recessions are the result of a sudden or significant drop in spending, which can happen for a variety of reasons. During periods of recession where cash flow is diminished due to drops in spending, many business leaders worry how they will survive the economic downturn. Small businesses worry about being able to make enough money to survive a recession, and employees worry about job loss and a soaring unemployment rate. High inflation affects business owners and the public alike, hitting checking and savings accounts hard across the country. There are, however, some things you can do to minimize the loss you and your business suffer during a recession.
Cut Your Business Expenses
Running a business is expensive; there’s no doubt about that. However, you could be spending more than you need to in several areas without even realizing it. Sit down and go over your business expenses, taking notes of places where you could potentially cut costs. Then once you know where your excess spending lies, make adjustments to save yourself as much money as possible. If you can reduce your rent by moving to a nearby office space, negotiating with your suppliers for discounts or better bulk prices, or implement more energy efficient utilities, consider how much money you could be saving in a time when every dollar you save counts.
Review Your Pricing
During a recession, business owners aren’t the only ones looking to cut costs wherever possible. Your customers will feel the effects of the economic downturn too, making them more likely to forego non-necessities, and in some cases, even necessary things. Lowering your prices during a recession may seem counterintuitive but restructuring your pricing model may help you continue to profit while helping your customers save as well, something they’re sure to appreciate. Shifting your focus to subscription-based services is a fantastic way to give customers a bit of a discount while keeping their business long-term. Another effective way to keep customer business is to offer packages or bundles such as free gift wrapping or a discounted price on bundles of products or services.
Prioritize Your Bills
The most important thing to keep up with during a recession are all your monthly business payments. Invoices that you need to pay or bills that come due need to be handled promptly and completely, or your business credit score can suffer due to late or missed payments. Failing to pay your monthly expenses also gives you an inaccurate picture of your overall financial situation. If you can’t afford to pay your bills on time during a recession, that should be a sign that you need to further reevaluate your business expenses and cut costs wherever possible.
Cut Off Problematic Customers
Contrary to the old saying, the customer is not always right. Some customers may tend to take advantage of your generosity and mistake your passion for providing excellent customer service for a free pass to be difficult. Customers who ask you to go beyond what the average customer expects or what is stated in your business policy or contract, pay late or underpay, make frequent complaints, or put unnecessary stress on you are not customers you should be prioritizing. Cancel contracts with problem customers or refuse to give them special treatment to prioritize or make space and time for better customers who won’t become a strain on your bottom line or your nerves.
Build an Emergency Savings Fund
The best time to prepare for a rainy day is before the rain. When times are prosperous and business is good, set aside a reserve of cash that you can draw from when times get tough. Your ability to save will depend on a variety of factors such as the industry you work in, your revenue vs your expenses, and more. If your budget allows for it, working with a business accountant or business bookkeeping service can help you better understand your financial situation, how much you should have saved, and how much you realistically can save over any given time.
Re-Evaluate Business Projects
If you’ve been working on business initiatives such as expansion products, advertising campaigns, renovations, etc., you may need to re-evaluate what you’re reasonably able to afford during a recession. During times of economic downturn, you’ll want to avoid putting unnecessary spending toward projects that won’t directly help to increase your revenue.
Consider a Small Business Loan
Small business loans are more than just another monthly bill you must pay. In many circumstances, small business loans can provide you with the extra working capital you need to keep your business up and running during a recession. Not all business loans come with hefty interest rates and monthly payments either. Merchant cash advances, for example, do not have interest rates or monthly payments, but are instead repaid as a percentage deducted from all your credit and debit card sales. Term loans, unsecured business lines of credit, merchant cash advances, asset-based financing, and equipment loans are just some of the types of business financing you can acquire to help get your business through a difficult financial period.
Maybe the most difficult suggestion on this list, but important nonetheless, staying optimistic during a challenging time can help get you through any struggles that come your way. Keeping in mind that most businesses will also be struggling during a recession can help you keep everything in perspective and avoid blaming yourself if your business does take a financial hit. As long as you continue to practice smart financial habits and keep your head up, you’ll find yourself much better equipped to weather the financial storm and come out the other side relatively unscathed. Every economy goes through better and worse times, so keeping in mind that the recession will eventually end can help you keep your sights focused on the future.