How to Safeguard Your Small Business for the Next Recession
- March 18, 2020
- Running Your Business
- 7 min read
You're our first priority. Every time.
We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Bottom line? We’re on your side, even if it means we don’t make a cent.
The next recession is inevitable. Economic cycles are difficult to predict, so depending on who you ask, it could be early next year, not until 2021 or it may have already begun. Regardless of when it happens, a recession is forthcoming — and there’s no better time to prepare than now.
When a recession lands, small businesses take the heaviest hit. Often, they don’t have a year’s worth of rainy day reserves to weather the economic storm. However, your business doesn’t need a massive savings account or 12 months of inventory to survive a recession. You can take small recession-proofing steps now to safeguard your business for an economic downturn — without slowing down your growth or denting your cash flow.
Your small business can avoid becoming another recession casualty by taking the right steps. Prepare your business with these four practices to ensure your small business’s survival and empower it to thrive during tough economic times.
1. Automate. Automate. Automate.
What’s more valuable than your time? As a small business owner, likely nothing. Now is your chance to look at how you’re spending your time day-to-day, week-to-week. Are there administrative tasks you can automate? Is there anything you can and should delegate?
During the economic downturn, you’ll have a host of new problems to solve and fires to put out, and if all your time is already bogged down, you won’t have the necessary capacity. Start taking your precious time back one minute at a time.
Find yourself setting a reminder to send the same email every month? Try using a Gmail plugin like Boomerang to schedule recurring messages. Filling out identical invoices to the same clients month after month? Use bookkeeping software like Sunrise to automate your invoice process.
Alone, these tasks don’t take too much time — but collectively, they eat holes in your schedule and destroy your productivity. Start the automation process now so you’ll be prepared for when a recession demands even more of your time.
2. Secure Capital Before You Need It
The best time to look for capital is when you don’t need it. Don’t wait until the economic storm clouds start filling the sky to look for financing. Because let’s face it — big banks prefer working with less risky, established corporations on a clear day, less so when an economic crisis occurs.
While your business and the economy are both healthy, secure financing that’ll help you now and in the unknown future. Obtain a business line of credit and begin building good payment behavior so you can continue to strengthen it. As you grow your payment history and decrease (or eliminate) late bills, you’ll qualify for extended credit lines.
With additional credit, you’ll be better prepared to deal with a recession. Not only that, you’ll have the necessary financing to help your cash flow now as you continue growing your business.
3. Make a Business Plan
It’s hard enough to build a successful startup when the economy is booming. When the economy isn’t, you can’t rely on luck alone. You need a plan.
Create your business plan now while things are going smoothly. Start with where you are today, where you want to be and how you’re going to get there. Make a detailed Plan B in case the economy decides not to cooperate. Decide how you’ll finance the business then and how this changes your business goals.
While you’re creating your plan, take a look at your budget. Can you identify any discretionary expenses? Software like Sunrise can help you get a detailed look at how you’re spending money. Now is a great opportunity to reevaluate company policies for travel or trivial benefits — perhaps you even have some unused office space you can sublease.
Another factor to consider is your business’s growth. Is it ready for expansion? If you’re noticing any of these signs, your small business might be ready to expand. However, if you expand too early and a recession hits, you could be in double trouble. Inversely, if you don’t expand when you should, your growth and cash flow could be stagnated before calamity even strikes — another dangerous situation.
4. Maintain ‘Goldilocks-Approved’ Inventory
Not too much. Not too little. Just the right amount of inventory.
It’s a tricky balance. You want inventory on hand before a recession so you don’t have to spend your limited cash or credit during difficult times, but you don’t want money wasted on storing inventory that will be selling at a slower pace.
Find the delicate balance so you can avoid unneeded waste while keeping the shelves adequately stocked.
The Bottom Line
There’s no way to completely recession-proof your business. You just can’t predict the economic impact and length of the crisis. But by implementing these four practices, you can boost your business’s chances of survival and even help it thrive in the meantime. And if the recession never hits (not likely), your small business will be better for the hard work you’ve put in reinforcing it.
More From Seek
Photo credit: G-Stock Studio/Shutterstock.com
Best Startup Loans of 2020 - Get Between $5,000 and $500,000
Get more great articles straight to your inbox!
Let us make it up to you with better articles straight to your inbox.
Recommended For You
Small business owners have to continually seek out new business to grow, while continuing to offer value to existing customers. Growing too quickly or too slowly can both have repercussions, so having a game plan on how you are going... Read More
- July 2, 2020
- Growing Your Business
- 8 min read
As an entrepreneur starting your own business, there will come a time when you must consider getting a business loan. Taking out a loan may seem nerve wracking but with the right tools and knowledge, it can actually be pretty... Read More
- July 1, 2020
- 7 min read
Outstanding invoices can be frustrating for small businesses. Although you know that the money for the invoices will get repaid at some point, if you have customers who are slow to pay or have long repayment terms, your company’s cash... Read More
- June 30, 2020
- Small Business Finances
- 10 min read
There are plenty of traits that entrepreneurs claim are responsible for their success — determination, persistence and taking risks are common among business owners. But just as important as these traits are, entrepreneurs need to also have certain sets of... Read More
- June 29, 2020
- 13 min read