5 Small Business Tips to Survive a Recession and Thrive
It's easy to assume that cost cutting is the best way, but studies show that small businesses must do more to survive a recession and thrive.
Recessions are a regular part of the economic cycles, but it is difficult for experts to predict exactly when a recession will occur or how severe it might be. While recessions are often hard on small businesses, they are also survivable. In fact, recessions can create great opportunities for well-prepared businesses. Some business experts even recommend starting businesses during a recession. It’s easy to assume that major cost-cutting is the best way to maximize your chances of success, but studies show that small businesses that do well during a downturn have done more than simply cutting budgets. Small business experts recommend taking the following steps to help your business survive a recession:
1. Keep COMMUNICATION open
Work with your vendors (suppliers, contractors, and business professionals) to renegotiate your existing contracts. Consider asking for an installment plan for payments to help smooth your cash flow cycle. There has never been a more important time to build your relationships with your vendors. It is in your vendor’s best interests for your business to succeed, so they will often work with you to meet your needs.
It is also important to communicate with your employees or business partners. Economic downturns are stressful for owners and employees alike. Helping employees to understand why you are making certain business decisions that will impact your employees can reduce turnover and improve employee satisfaction.
2. Lower inventory levels
Excess inventory can cost you. Not only do you have the initial cost of purchasing large amounts of inventory, but very often you then have to pay to store or maintain that inventory. Giving up large bulk purchases can help you to avoid a cash crunch or getting stuck with excess inventory that is difficult to sell. Strike a balance between the cost savings of bulk orders and your realistic sales numbers (and associated expenses like storage or shipping).
3. DEVELOP a Collections plan for Invoices
For businesses that allow their customers to make purchases on credit, a plan for collecting on receivables is essential. Consider offering a small discount to customers who make payments early or pay up-front. For larger payments, consider requiring an initial down payment that covers the majority of your cost for the product or service. If you are willing to work with your customers, they will usually be willing to work with you.
4. Focus on your best sources of revenue
If your best source of revenue is from children’s haircuts, double down on children’s haircuts. Allocate more of your marketing budget for that revenue stream and consider cutting products or services that are high cost, require unique equipment or packaging, and have a small profit margin. Consider how your best revenue streams could be growth opportunities. Could you make low cost changes to your salon to be more child friendly? Lean in to your highest profit margin revenue streams and potential growth opportunities. Recessions are a great time to pivot your business and to zero in on more of what makes your business successful.
5. Invest in customer relationships
In recessionary times when consumer and business budgets are tight, robust customer relationships can mean the difference between surviving and thriving. Build your customer relationships to create or maintain brand loyalty. Promote referrals to other customers as a simple, low-cost marketing technique. Learn about and address your customers’ needs and respond to their concerns.
How to Prepare for a Recession
Before a recession begins, there are steps you can take to improve the resiliency of your business during an economic downturn.
- Build your cash reserves. Cash savings serve as an important cushion for emergency situations like pandemics, recessions, and natural disasters. Cash reserves can also be used to fund planned business growth opportunities. Expert business coaches recommend having a minimum of 3-6 months of operating capital in cash reserves for emergency situations.
- Keep an eye on your finances. Regular and accurate financial analysis allows owners to make informed business decisions. If you aren’t already, become familiar with your budget, profit and loss statement (also called an income statement), cash flow statement, and balance sheet. These financial reports tell you about the financial health of your business and can also help you identify areas for improvement.
- Know your strengthens and weaknesses as a business. In addition to being aware of the financial health of your business, it’s helpful to identify and address the strengths and weaknesses of your business. What is making you successful and how can you double-down on that? What are the challenges you are facing and how can you overcome those? Are there costs you can cut or revenue streams you can improve? The stronger your business is before a recession, the easier it will be to survive a recession and even thrive.
- Develop a low-cost marketing plan. Marketing is key to small business success, but it doesn’t have to cost a fortune. Creative marketing ideas can be low cost and high impact. Make sure you know which parts of your marketing campaign are having the biggest impact on sales and focus in on those ideas. Marketing during a recession needs to highly targeted.
Do More Than Survive a Recession: Thrive
Not only can you survive a recession, but you can thrive during a recession through simple preparation techniques and intentional changes to your business practices. To talk to an expert business advisor about specific steps you can take to prepare your business, sign up for free business coaching through the AOF Coaching Hub.