Making Your Small Business Recession-Proof
As a small business owner, there are few things that can bring about the stress that comes from a sudden economic downturn. A recession has the potential to halt any momentum that your business has built. To make things even worse, you can’t always see a recession coming in advance, which means that you always need to be ready.
Fortunately, there are some steps that you can take to help recession-proof your business. One of the keys to owning a successful business is to be proactive instead of reactive. If you don’t make any changes until you’re facing a recession, you’ll be starting behind the 8-ball.
By implementing some changes early, you can take a proactive approach to keeping your business afloat, even during the tough times.
Strengthen Your Cash Reserve
When it comes to your business, cash is the most powerful tool that you have at your disposal. Whether you’re a small business owner who is the only employee on the payroll or you own a company that employs dozens of people, having cash on hand is an important part of keeping your business safe from the dangers of a recession.
In the same way that people need an emergency fund for their personal finances, your business needs an emergency reserve of cash that you can use when times get tough. Try to build an emergency fund that can cover your business for three to six months.
Building a strong cash reserve requires you to make some adjustments. Try to eliminate unnecessary spending and negotiate better terms with your suppliers. Any excess money should go into a high-yield business savings account that allows it to earn as much interest as possible.
A high-yield account is a great resource as there’s no penalty for withdrawing funds, so you have constant access to your money. When you’re not using it, it’s earning more interest than it would earn in a traditional savings account.
Diversify Your Revenue Streams
When your business becomes too reliant on a single product, service, client, customer, or method, you run the risk of becoming a statistic during a recession.
In the same way that investment experts tell investors to diversify their portfolios, you need to diversify your business’s income streams. Generally, recessions impact certain industries more than others. While you may not be able to completely protect your business from a recession, being diverse can help keep you afloat during the lean times.
Look for opportunities to add complementary goods and services to your current offerings. Additionally, try to find ways to get into new markets and appeal to new customers and clients.
Depending on the product or service that you offer, offering subscription services is a great way to generate consistent revenue. The goal is to avoid being overly reliant on a single product or service.
Optimizing Operational Efficiency
When a recession strikes, businesses need to operate as lean as possible without sacrificing quality. That’s often difficult for businesses to accomplish, which means it’s a good idea to start looking for ways to improve efficiency without sacrificing quality today.
Conduct an audit of your business and identify areas where you may be able to improve efficiency and reduce some costs. If you can find room in the budget, consider hiring an outside consultant to conduct the audit. Sometimes outside eyes can better identify blind spots that you’ve been missing.
Something as simple as finding a way to automate repetitive tasks can help secure your business during a recession. You can also routinely save some money by renegotiating contracts with your vendors.
The goal is to make every dollar accomplish more than it’s currently accomplishing. By putting those practices in place before a recession, you can increase cash reserves while also establishing the most efficient method of getting the job done.
Strengthen Relationships With Your Customers
Loyal customers are the lifeblood of your business. When economic times get tough, those loyal customers may be the very thing that keeps you afloat.
With that in mind, if you don’t strengthen the relationships that you have with those loyal customers when things are normal, you run the risk of not having them around when things get tight. Prioritize your company’s relationship with your current customers by offering flexible payment options and creating marketing strategies targeted toward your loyal customers.
While the goal is to be proactive in managing your business, you may have to adjust your strategy during a recession, making changes based on what’s happening in the market.
If you notice a decline in revenue, consider incentivizing your loyal customers with reward programs or discounts. Creating strong relationships with your customers can often be the difference between surviving a recession and falling victim to it.
Managing Debt
The odds of your business ever being completely debt-free are slim. With that in mind, you need to handle your debt wisely. If you try to leverage debt during a recession, you may find that lending conditions are quite different, making it harder for you to borrow the money that you need.
If your business relies on things like credit lines and loans, try to get them paid down while you’re not facing a recession. It will make it much easier to get funds should you need them during a recession.
If you don’t have a line of credit for your business, consider getting one while you’re not facing a recession. Establishing a relationship with a lender can be a great way to protect your company when a recession strikes.
Plan for Tomorrow Today
Recession-proofing your business requires you to start taking steps today. By implementing these tools, you can set yourself up for success, even when the economy takes a downward turn.