September 8, 2022 11:14am
Is It Time to Prepare for a Recession?
If you’re a small business owner, you’ve no doubt been through a lot in the past few years. First, there was the pandemic, which forced many businesses to close their doors or pivot to a new model. And now, there’s growing speculation that a recession is on the horizon.
With inflation rising and interest rates beginning to creep up, it’s important to start thinking about how you can recession-proof your business. After all, another economic downturn could be just around the corner.
Here are some key steps you can take to prepare your business for a recession:
- Review your expenses and cut costs where possible. This is one of the most important things you can do to prepare for a recession. Take a close look at your budget and see where you can trim costs. Can you negotiate better terms with vendors? Are there any unnecessary expenses that can be eliminated? Cutting costs will help improve your bottom line and make your business more resilient during tough economic times.Since your business survived the pandemic, you’ve probably learned to operate much leaner that you’ve ever operated before and have pivoted business models several times. So, saying it’s important to cut costs may be a moot point in your mind. But as before in the pandemic, cash is the key to surviving and cutting costs now will help with your cash reserves.
- Build up your cash reserves. Having a healthy cash cushion is crucial for weathering a recession. Aim to have enough cash on hand to cover 3-6 months of operating expenses. This will give you some breathing room if revenue starts to dip during a downturn.If possible, consider applying for a business line of credit for your business or if you already have one, ask your bank to increase your credit limit. A line of credit is a great way to provide emergency funds when needed.
- Diversify your revenue streams. If your business relies heavily on one or two sources of income, you’re more vulnerable to a recession. Try to diversify your revenue streams so that you’re not as reliant on any one particular source. This will make your business more resilient and better able to weather an economic downturn.A bit of caution is advised when looking to diversify revenue streams. In some instances, acquiring additional lines of business require additional investment to fund the new revenue initiatives. See #2!
- Focus on customer retention. During a recession, it’s more important than ever to focus on retaining your existing customers. After all, it’s cheaper to keep a customer than it is to acquire a new one. So, make sure you’re doing everything you can to keep your customers happy and engaged. Offer loyalty programs, discounts, and other incentives to keep them coming back.Invest in marketing. Many businesses cut back on marketing during a recession, but this can be a mistake. In fact, now is the time to double down on your marketing efforts. Investing in marketing will help you attract new customers and keep your existing ones engaged. Plus, it can help set your business up for success when the economy eventually improves.
By following these steps, you can help recession-proof your business and weather any economic downturn that comes your way.
David Oetken is the Center Director at the Louisville Small Business Development Center. He can be reached at