An economic recession is a notable decline in the economy, which lasts for some time and affects the Gross Domestic Product (GDP), industrial production, real income, wholesale-retail sales, and employment. It is important for small business owners to learn some tips on how to survive a recession.
When a recession hits, it severely affects entrepreneurs and small businesses who are struggling to keep their businesses afloat during these tricky times. The growth of the economy lags during this time, making the business owner experience an economic crisis.
If you rely on the sale of services and products to pay your income, depression or recession can increase interest rates due to a decline in the stock market. This not only affects a particular country like the United States but can also affect global economies.
A domestic recession affects important factors like Gross Domestic Product (GDP) and the rate of unemployment. The greater the downturn of GDP, the more small businesses struggle to stay afloat.
During this coronavirus recession, it is easy for small business owners to panic. Panic is driven by emotion and not fact. No one wants to give in to panic and let their business spiral out of control.
Because this is so important, we are going to go through ten ways of creating a recession-proof business.
How to Help Your Business Survive a Recession
1. Deduct your salary.
Before you cut down on your employees’ salaries, ensure that you deduct your salary first. Employees need to see that you are sacrificing, as well. There is no sense in saving 20% from employees’ salaries and losing 50% on productivity.
2. Improve your marketing campaign.
In a recession, businesses need to always keep in mind their consumers. Recessions are stressful situations for everyone, and in that period, it is easy for businesses to be forgotten by customers. To stay afloat, businesses need to capitalize on opportunities in the online world.
They can send rich content to their current customers in their email list, check for lost customers and give them an offer on products to bring them back, use online ads to woo customers, and make constant posts on social media to keep customers updated.
3. Capitalize on your best customers.
Your current customers are an opportunity to make more profit without incurring the costs of looking for new customers. They may also be loyal customers that give you more sales and opportunities. Focus your sales to include established customers for a recession-proof business.
The trick here is perfect customer service. Always keep your customers happy by selling them what they love. As the saying goes, “the customer is always right.”
Ensure that you identify and meet their needs. It is important to retain their business through thick and thin. This is one of the most crucial factors to keep in mind during an economic meltdown.
4. Lease items rather than purchasing them.
Do you need any new office items? You should opt for leasing rather than purchasing. You might end up spending more money in the long run, but in an economic downturn, cash flow is important.
5. Reduce your rent.
You can negotiate with your landlord on a lower monthly rent. You can sign a long-term lease in exchange for a reduction in your monthly rent payment. Since your landlord runs a business too, they would rather you stay for a long time rather than allowing the unit to become vacant. This is beneficial for both of you in surviving a recession.
6. Get a utility discount or discounts on other bills.
Don’t forget about your bills like the internet, water, power, and phone. You can give your vendor’s competitors a call and ask them the deals they can offer a small business looking to cut costs on their utilities and other bills.
Let them know that you are willing to switch to their services if they offer better discounts than your current vendor. You can then call your vendor to discuss the new discount offers you received from their competitors to have them offer better discounts to save you the trouble of switching vendors.
7. Cut on wasteful spending.
This spending might be magazine and newspaper subscriptions that were part of your spending during the high-revenue times. Keep track of your income and expenses. This does not mean cutting back on that morale-boosting office party. You want your employees to be well motivated during these trying times for the survival of your company.
8. Keep your credit scores in check.
In an economic recession, it can be hard to borrow. Small businesses with credit card debt are the first to feel the pinch. More so, lenders charge high interest rates.
Ensure that you monitor yours regularly to keep you at the top of the game. Your creditworthiness is assessed differently by three main business credit bureaus, i.e., Equifax, Experian, and TransUnion.
If you have outstanding personal credit, you stand a chance to borrow to keep your business afloat. It is also important to acknowledge that the U.S Small Business Administration, in addition to its funding programs, makes easy qualifying loans accessible during times of national crisis.
9. Review your inventory.
Calculate how much money is tied to your inventory. Check items that do not move quickly. You do not need more than a hundred items sitting on the shelves waiting for the next big order unless you are a big business with a great inventory turn-around. Reduce the amount in the inventory and release more cash that is much needed for a constant positive cash flow.
Can you increase the delivery of items from your supplier? Stock a few units on the shelves and save more money in your savings account. You can liquidate the products that are not selling.
10. Pay your liabilities later.
You can call your vendors in advance to get better terms. You can get a 45-day term instead of a 30-day term. An extra 15 days is very important for the survival of your business. If your vendor is not able to extend your terms, you can get a discount for early payment, like 10 days.
You can use a credit card to extend your liabilities. If you have 30-day terms with a supplier, you can extend it to 90 days by paying the invoice in 30 days using American Express Plum Card. It gives you a 60-day term with no interest rates. Preferring a Plum Card to a check gives you 90 days grace period to make payments to your suppliers without accumulating any interest.
In summary, your business cannot be 100% recession-proof, but using these methods can at least help your small business survive economic downturns and even make capital out of them. Your business needs to be flexible and agile to adapt to the new norm. All you have to do is analyze how you are doing now and look for ways you can make improvements.