Though many people have tried to predict the next economic upheaval, recessions oftentimes start with something small.
According to www.beintheknow.com, “The warning signs of a recession are simply too strong to ignore, and the reality is that recessions happen. Some are longer and more painful than others, but nothing can go up forever… In fact, the Telegraph’s Jeremy Warner says ‘the only question is how bad’ the next recession will be.”
A recession has a significant impact on consumers who have debts to pay, thereby condenses consumer spending, and thus, affects small businesses.
So, how can small businesses protect themselves from a possible recession?
By first preparing for a recession, small businesses will then have the capability of surviving it—and even thrive during it! And here’s how:
Recession Preparation Tip 1: Develop a Growth Mindset
According to www.beintheknow.com, “People with a growth mindset achieve goals they set for themselves because they believe that they can. They see opportunity where others see roadblocks. And it doesn’t matter what industry you’re in — from selling purses to investing in agricultural endeavors — when you learn to look for opportunity, you find it.”
Employees with a fixed mindset:
- Oppose learning new technologies, repel changes
- Believe setbacks are reasons to quit
- Don’t complete the tasks they deem “too difficult”
- Feel jeopardized when others succeed, dislike working with others
- Resent extra work
- Disregard negative assessments or criticism
- Consciously begrudge new challenges
Employees with a growth mindset:
- Feel excited to discover new technologies, accept change
- View setbacks as obstacles to conquer
- Seek assistance when needed
- Collaborate with teammates, look for ways to help others succeed, and learn from them
- Contribute their time and effort for success
- Use negative evaluations to improve performance
- Continuously attempts to improve their performance
Recession Preparation Tip 2: Guard Your Cash Flow
- Decrease Debt: Business owners should make a conscious attempt to remain debt free or decrease the amount of debt they have prior to a recession. Owners should evaluate the places operating costs can be decreases and ensure they have enough emergency funds to last the duration of a recession.
- Diversify Products and Have a Savings Account: Deposit profits into a savings account—one that is protected from the markets— to ensure your business will continue to operate throughout a recession. Diversifying your businesses’ products and services will provide you with options to continue generating income if a change in your client’s finances affects buying patterns, needs, or wants.
- Have Reserves Set Aside: A safe and healthy reserve consists of six to 12 months’ worth of expenses saved in your businesses’ savings account. In addition, with a line of credit ready to go to bridge the gap will also help during financial emergencies.
Recession Preparation Tip 3: Expand Your Client Base
Recessions are inevitable, but businesses that have a large client base—not just one significant client, but a diverse group of clients—will protect their business if a recession triggers the loss of a larger client.
- Know Your Market: Most business owners can sense when the downturn starts—even before the media does. By leveraging their knowledge of the market, business owners will be more prepared for a recession. Surviving a recession also provides opportunities to learn from it and prepare a business to take advantage when the market turns back around.
Recession Preparation Tip 4: Audit all Business Facets
According to Forbes, David Frisch, of Frisch Financial Group, Inc. states: “Businesses will always have peaks and valleys. Especially when times are good, business owners need to evaluate all aspects of the business, including staffing, compensation, inventories, overall efficiency, available credit lines, outsourcing, etc. An overall strategy must be developed so that when, and if, there is a downturn, business owners are prepared and act quickly but not impulsively.”
- Strengthen Your Growth Framework Foundation: The foundation of growth for any sustainable business is paramount throughout a recession. A business should double-check their product and market fit against the background of any economic reality. Does what a business offers truly meet the needs of their ideal customer? Throughout difficult times, is the product something an ideal customer must have? By recognizing their customer’s transforming needs during an economic hardship, businesses must be honest about their place on a customer’s priority list. Taking ownership of how to market during a recession can keep the company on track.
- Have a Diverse Book of Business: “Macroeconomic changes are difficult to predict. There are lead indicators, like the consumer/debt ratios, but ultimately, a recession is still hard to predict,” says Sal Rehmetullah, Fattmerchant in Forbes. “Entrepreneurs need to have a diverse book of business; never rely on just one contract or customer. Be cognizant of overstaffing and of what’s in your control.”
Recession Preparation Tip 5: Plan for Back-to-Back Economic Bombshells
The best way to guard against a recession is to plan for one. But planning for back-to-back economic blows is the key to staying in business amidst a recession. When businesses formally implement this mindset, in addition to preparing a budget, growth plans, and financing, businesses may be able to sidestep the disaster and continue to sustainably invest and grow.
Let the experts at Focus Financial help you plan for the unexpected. We offer business owners—no matter the size of the company—a vast range of comprehensive financial services to help protect your assets, investments, and future. Contact us today to learn how we can help!