Are you asking yourself these questions: Are we in a recession? What will a recession feel like for my small business? What can I do to prepare my small business for a recession?
This blog reiterates advice from our SBDC network on recession-proofing your small business. In my opinion, this advice works regardless of whether you are worried about a recession, inflation, a pandemic or just competing in the marketplace.
David Rodeck, a contributor with Forbes Magazine wrote in July of this year “A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time. Recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy.”
Recessions are an unavoidable part of the business cycle, which means there is nothing we can do to prevent one from happening. But, you can be prepared which may minimize the negative impacts of a recession on your business.
So, what can you do now and how can you plan for the future to minimize the risk to your small business? Here are some steps to take to help you prepare:
- Determine if the business needs to cut costs. It is a good idea to assess your business regularly to determine what costs can be cut. In a recession, your revenues may shrink, so you will want to be even more effective at cutting costs than in better times. Some expenses items may need to be cut out altogether, while others can be reduced somewhat.
- Don’t overreact. Take a sober look at the economy and where your business sits, and then make appropriate changes incrementally.
- Labor costs are generally one of the firm’s primary operating costs. Be sure that the business cashflows can support your staffing levels or may cuts. Also consider outsourcing tasks, such as payroll and HR. if you don’t have an employee qualified to do these tasks, or the tasks do not require a full-time person, you may save money by outsourcing them.
- Try to be a “price maker” and not a “price taker”. Examine whether you need to seek out alternative supply sources to control costs. Also, be sure that your key employees are properly compensated.
- Don’t let emotions play into having to make tough decisions.
- Look to the future which involves generating a range of projections based on a different set of assumptions. Look at the business from a “worst-case” scenario and plan accordingly.
- Check with suppliers to be sure they can provide you with the items you need to operate and set up alternative sources if there are concerns with your supplier.
- Examine your prices to find out how much and which items can be increased and by how much they can be “bumped up”. This may not cover all your costs, but any contribution to cover costs is positive.”
Additionally, Mr. Wilfrid Baptiste of Financial Blind Spot LLC developed and presented a webinar last month titled “Recession-Prep your Business in 7 Steps”. He did an excellent job discussing 7 steps that not only reduce your risk for economic downturns like a recession, but that can help strengthen your business for success in any situation:
- Eliminate single point failures
- Expand revenue sources
- Client satisfaction
- Increase liquidity
- Minimize your debt, but have options available for emergencies (lines of credit)
- Improve operating efficiency
- Know your competition
Mr. Baptiste’s seminar will be repeated next week. It is free and well worth an hour of your time. For more information or to register, click here.
If you would like help in prepping your business against the negative impacts of recession the UMW SBDC can help. If you are a client, please contact your consultant to schedule an appointment. If you are not already a client, you may register for free, confidential business assistance by completing a Request for Consulting form on our website, umw.edu/sbdc.