Should You Be Preparing for the Next Recession?
Are we due for a recession? According to 38% of economists surveyed by the National Association for Business Economics, the answer is “yes.” In contrast, Forbes contributor John Tobey says the signs just aren’t there. So who’s right? It could be both. Economic trends shift with the business environment and so do the resulting predictions. But one thing’s for certain, all businesses go through up and down cycles. That’s why it’s important to prepare for the inevitable downturn, whenever it might occur.
Start by considering these actions to put your business in its strongest position to weather a recession in your business cycle.
Aggressively Manage Cash Flow
Most businesses depend on a consistent cash flow. A late-paying customer or a supplier with a surprise price increase can throw you off—especially during a recession. Focus on these areas now to build a strong cash flow stream:
- Accounts receivables – Follow regular invoice and bill-reminder schedules. Consider charging a fee or not offering longer payment options. Another alternative is to offer discounts for payment at time of purchase or service. Establish timely procedures for late payments.
- Expense management – Does your operating budget reserve for unexpected expenses? A reserve helps you avoid having to seek outside sources at a time when funding may be hard to get. Another option is to establish a working line of credit to draw on if you experience a negative cash flow. These funding sources provide an automatic reserve you can tap and repay as needed. You only pay interest on the portion you withdraw. Nerdwallet offers their review of best working capital loans for small businesses.
- Inventory control – Reassess the minimum quantity you need on hand before you reorder. Work with your suppliers to establish replenishment speeds or even to temporarily house inventory until you need it. Explore alternate suppliers, in case you need them.
Grow Revenue Using Your Biggest Asset
The biggest competitive advantage for many small businesses is service. So look for ways to use this asset to grow your sales. Studies show that consumers are willing to pay more for better service. That’s an important hedge if you need to raise prices during a downturn.
Rather than downsizing your marketing efforts, rechannel them to emphasize service. Promote offerings like free delivery, no-obligation consultation or loyalty programs. Reinforce the value of your service by sharing customer stories on your social media platforms.
Don’t overlook who delivers the service—your employees. Some businesses start each day with a 10-minute meet-up that focuses on how to deliver better service. During an upcycle, others invest in employee training programs to grow their customer service skills. A customer-centered team can help beat the competition in a downturn.
Reserve Appropriate Staffing
Don’t wait until an economic downturn to manage your employee costs. Begin by hiring the right people for the right job. Employees with the appropriate skill set require less training and supervision. That means they can have a more immediate payoff for your business.
Next consider how and when to add more staff. A new employee will add to your fixed costs. On the other hand, a contract employee adds to variable costs giving you more flexibility. Staff reductions during a downturn can negatively affect employee performance so build capacity with sustainable resources.
Should you be preparing your small business for the next recession? Yes. Whether it’s coming soon or beyond, it’s smart business practice to be ready for the eventual downturn in business cycles. Begin now with these ideas. Looking for more? The Small Business Administration (SBA) offers these 14 recommendations to manage through a downturn.