With the recent news and overall financial climate, it's normal to feel worried regarding the looming recession and its impact on your small business finances. It's not just you: According to a recent Empower and Personal Capital survey, 74% of American consumers are worried about a recession. The Harris Poll polled 2,000 U.S. adults between April 19 and April 23 and found that 85% of respondents were concerned about inflation, and 56% said they already saw a decline in their standard of living.
Although downturns are a natural part of the economic cycle, experts are eager to point this out; you should still be ready for one when it happens. Small businesses cannot just rely on disaster loans and tax credit schemes to survive this type of recession, unlike the one brought on by the pandemic.
But don't worry; below, we have provided a few tips to help you prepare your small business for a possible recession.
Five tips to prepare for a potential recession
Whether a recession is near or a bit further away, you can follow the following tips to prepare your small business:
1. Be informed about recession warning signs
It is typical for stock values to decline and the unemployment rate to increase during a recession. These are some economic indicators that might precipitate or warn of a recession, and you need to keep up with them. It's important to mention that these financial warning signs have historically occurred before most global recessions, so it's verified to be behavior related to recessions. These consist of:
Increase in unemployment numbers.
Stock market downturns.
Decreased mortgage dropping consistently.
Governments are talking more about a coming recession.
Reduced output from factories and fulfillment centers.
Gross Domestic Product (GDP) declines consecutively.
Spikes in numbers of debt for credits and loans.
2. Reduce where you spend and how often
It may sound straightforward and obvious, but cutting back on your spending will enable you to contribute more to a "safety net" fund in case you need to, given the current economic climate. You can take the following actions to assist in lowering your cash output:
Track your expenses, especially for tax write-offs.
Negotiate rates with your suppliers or do more research on different suppliers for better rates.
Remove any expenses that are not 100% necessary right now that won't hurt your business for the following year.
Research alternatives for negotiation of rent or other vital expenses of your business (such as WiFi prices, and meals, among others.)
Start using a dedicated business bank account that will provide perks, cashback, and rewards.
3. Plan a financial strategy
Every action begins with a plan. And for a recession, you need to put your plan in writing. You must set objectives, create scenarios for yourself, and what to do then. To maintain your small business operating, budget your financial expenses according to your bottom line. To be as organized as possible, create a recession-proof business plan.
4. Make cuts on some of your products or services
We all have specific products or services that don't perform as well as others, which doesn't mean we have to dispose of them forever. But during a recession, you should focus on what works best to ensure your business keeps afloat, as a matter of strategy.
You can go through these products and services with your staff or finance department. This makes it easier to spot any services or goods that are not that profitable, so you can pause those services to keep what's working the most and not experiment with expanding.
The same applies to projects that are not meeting expectations, such as product tests, employee layouts, and service projects. You can also use your cash flow on what matters by cutting these projects.
5. Focus some funds specifically on marketing
Marketing and sales expansion are probably good places to spend any funds you have to keep the firm expanding during this period of uncertainty. Marketing helps create a brand and awareness about your goods or services and stand out to potential clients.
A greater return on investment can be pushed with good marketing. The more your customers or clients are aware of your products or services; the more probable they will contact your company when they require that kind of good or service. Check our guide: "The five steps for creating your perfect strategic marketing planning."
Although many business owners in the U.S. are concerned about a recession, the greatest approach to lessen its effects on your company is to be well-prepared. By adopting the tips outlined above, you can future-proof your company. You can create a 6–24 month plan for your company to improve your cash flow and lessen cash pressures.
Prepare for times of need with One Park Financial
With One Park Financial, you can get the help you need to be financially more secure. How? We work to help owners of small and mid-sized businesses access the working capital that they need. Our process is simple, and we've helped many small companies whom banks have turned down to access funding. As long as you have at least three months in business and at least $7,500 in monthly revenue, we can help you quickly find the working capital you need. To start, you can fill out our online form to see if your small business prequalifies.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.