With the start of the new year and many economic changes looming, the word "recession" has been hovering in the media. There are steps you can take in order to prepare for economic downturn or a possible recession. Here is how to survive a recession as a small business in a few steps.
1) A Recession is a Prolonged Period of Economic Downturn
A recession is often considered after two consecutive quarters of negative growth. That's six months (or half a year) of downturn. However, a recession can actually only be confirmed by the National Bureau of Economic Research (NBER). The NBER is a nonprofit, non-partisan organization within the United States. Another factor in the economic recession qualifier is unemployment. Since June 2022, the unemployment rate has hovered around 3.7%, an all-time low since the beginning of the pandemic. All the while, new jobs in the market continue to increase, with 263,000 new jobs created in November 2022, according to U.S. Bureau of Labor and Statistics. Recession length can vary—the most recent recession sparked by the Covid-19 global pandemic lasted two months. The recession before that, called the Great Recession, began in December 2007 and lasted for 18 months, according to NBER analysis. NBER estimates the average recession lasts eleven months, based on data from 1945 to 2009.
2) Make Data-Driven Decisions
When facing a recession, it's important that you do not panic. The prospect of a recession is scary, yes, but there are things you can do to prepare for your business to survive a recession. The number one thing is to make data-driven decisions. Often with recessions the economy will see an increase in unemployment and inflation. Costs will go up, sales may go down. Before you make any big changes to your business, look at your numbers. What do your financial trends over time show you? Evaluating the changes over time will help you make data-driven decisions rather than panicked ones. Be smart about what you're spending, tightening where you can. Do you know what your costs are? Have they risen, can you make informed switches to your spending? Managing cashflow is important in recession-proofing your business. Keep an eye on your receivables. Can you offer more payment options to encourage timely payment? Can you let go of clients who do not pay on time? Stopping any credit extensions with clients who aren't able to pay also helps you manage your cash flow.
3) Protect Your Cash Flow
Another way to manage your cash flow is to protect it. Once you've cut back all unnecessary spendings, look to see where you can further adjust spending. Are you stocking your office in paper products? Switch to reusable towels or buy in bulk for a lower per-use-cost. Look at financial assistance either from small business loans or apply for small business grants. This further supports your cash flow if sales slow. By diversifying your income streams, either with multiple products and/or services you offer, you take away the pressure for one specific client or product to make all the money for your business. Finally, invest in your current customers. New client acquisition is expensive both in time and resources. Supporting your existing customers so that they continue to work with you is an invaluable way to protect your cash flow. This is where consistent, clear marketing and branding helps you build your reputation and relationships with your clients.
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