How to prepare for a recession ... just in case one happens
Columnist Dean Swanson says many small business owners are worried a recession is looming.
Some people predict a recession is coming, while others dismiss the notion since the nation is essentially at full employment. But many small business owners are worried a recession is looming. According to the latest Small Business Recovery Report, issued last week by Kabbage from American Express, 83% of small business owners are concerned a recession is coming soon. But entrepreneurs tend to be optimistic, and in that vein, 80% are confident they can withstand it.
Rieva Lesonsky, one of SCORE’s content partners and president and CEO of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, wrote a great blog on this topic. I share that with you in this column.
Interestingly, the business owners are so confident they can withstand a recession because they survived the COVID-19 pandemic. They say the pandemic “helped them find a greater sense of resilience and preparedness to be successful in the future, despite economic turbulence.”
Due to inflationary pressures, many of the businesses surveyed have already raised their prices, so they’re in a stronger financial position in case a recession comes, but many are still struggling with supply chain disruptions.
Cash flow is king. As I was doing the research for this blog, I came across an interview I did with my pal Steve Strauss about surviving a recession — in 2009! And what I said then is still relevant today. While cash flow is always king, it becomes more paramount during recessions because customers and clients often pay you later than usual. Net 30 becomes net 60 in a hurry.
It’s critical for you to keep your cash flowing. Start by examining your accounts receivable and payable right now. What’s your monthly cash flow today? Are there invoices that are past due? If so, call those customers and try to collect now.
Due to inflation, it’s likely you’re spending more than you typically do. Look for areas where you can cut back now before you’re forced to. One area that business owners often overlook is subscriptions and dues. Are you paying for publications or newsletters your rarely read? Are you a dues-paying member of organizations that you never interact with? Are you paying for technology apps you rarely use?
Keeping your overhead spending low during a recession will make a significant impact. Are you still operating remotely? This is a smart way to keep costs low. Spend your money wisely. Use credit cards that offer cash back or other relevant rewards.
But maintaining cash flow isn’t just about monitoring money in and money out. It’s also important to spend time nurturing your current business relationships. You want to cement them now, so you would be the last to go if they’re forced to cut back during a recession.
Now is not the time to cut back on prospecting for new clients and customers. Instead, think of ways you can immediately make your business top-of-mind for them. Perhaps you can offer extra training, support services, or discounts for buying in bulk or making early payments.
Diversify your sales channels. Most businesses increased their online offerings during the pandemic, but that has dimmed somewhat over time. The Small Business Recovery Report shows that in March 2021, of the small businesses surveyed, said online sales accounted for, on average, 57% of their revenues. This has slipped to 40% in the latest Report.
In a recession, consumers are likely to cut back on driving, especially with the elevated price of gasoline, so online shopping will likely increase. Even if a recession does not happen, it’s smart to diversify your sales channels to reach as many customers as possible.
Keep investing in marketing. When money is tight, many businesses reflexively reduce their marketing spending. Don’t do this. The businesses surveyed in the Small Business Recovery Report don’t intend to — 45% of companies say they plan to implement new competitive strategies so they can stand apart from other companies. The businesses surveyed say branding is their “primary differentiator,” so it’s a good time to make sure your branding looks current and that you use it consistently in-store/office/facility, online, and in your marketing materials.
I discovered another interview I did with Marketplace back in 2008, where I advised small business owners they need to understand the power of social networking and online marketing. This advice still holds true today. The Small Business Recovery Report shows that 44% of businesses now market through social media and digital channels.
And the new Q2 2022 Consumer Trends Report from Jungle Scout, an all-in-one platform for e-commerce businesses, reveals the influence social media and advertising has on consumer purchases:
- 35% have purchased a product after watching a social media brand’s live stream.
- 42% say being “followed” around the internet by ads is a helpful reminder, while.
- 32% say they are “creeped out” by the tactic (retargeting).
YouTube is the most trusted social media platform for finding and purchasing products, followed by Facebook and Instagram
Getting help. Since we are at nearly full employment, hiring is challenging for many small businesses. So instead of hiring full-time employees right now, look to outsource some tasks to freelancers or independent contractors.
You’re not alone. We’re still not certain there will be a recession, but if you prepare now, you’ll be better equipped to handle one if it does occur. It’s also important not to be afraid of this. Being fearful leads many businesses to reduce or stop investing in their companies, which essentially guarantees you won’t grow and can endanger your survival.
Dean Swanson is a volunteer Certified SCORE Mentor and former SCORE chapter chairman, district director and regional vice president for the North West Region.