7 Ways to Recession-Proof Your Small Business during an Economic DownturnBecky Brown
Have you heard talk about a recession or an economic downturn? According to the National Bureau of Economic Research, a recession as a significant decline in economic activity. This decrease is spread across the economy and lasts more than a few months.
The good news is that most recessions are brief. The not-so-good news is that even a few months of an economic downturn can be devastating for small businesses. But back to the good news: You can take steps to recession-proof your business. And the time is now.
“Even if we’re not in a recession currently, Americans have $473 less each month, so they have to make choices,” says John Addessi, business advisor at the Kansas Small Business Development Center at Johnson County Community College. “You want to make sure they make decisions in your favor. There’s no one silver bullet, no one lever to pull. But there are things to watch.”
Being informed, flexible and engaged can help you strengthen your business to withstand uncertain times. Here are seven steps to make your venture more resilient.
1. Control your cash flow.
A study by U.S. Bank determined that 82% of small businesses fail due to cash flow problems. Yikes. And during an economic downturn, these ventures are more likely to not have enough money in the till to cover payroll or rent.
“Any business needs to look at cash flow, and a lot don’t know where or how,” says Jill Hathaway, business development consultant at the Missouri Small Business Development Center at the University of Missouri – Kansas City. “They need to work with a bookkeeper, accountant or business consultant who can be more critical, quicker, in times of recession.”
This outside perspective can help identify areas where your cash isn’t flowing the way it could. It’s not about adding up the numbers; it’s about understanding the numbers. Take a look at financial statements and see what can be changed. Some ideas:
· Compare your company to its peers. SBDCs have access to databases that share financial info about specific industries. You can learn what others are paying for labor, materials, rent and more. See if your numbers align.
· Make it easy for clients to pay you. Set up direct deposit or make it simple to pay online. Consider offering a discount for payments made net 15 instead of net 30.
· Renegotiate with vendors. Talk to suppliers and service providers to see how you can control costs without sacrificing quality. Vendors want to keep your business and maintain the relationship.
2. Expand your network.
“People do business with people they know, like and trust,” says Julie Brander, an entrepreneur and speaker at a recent SCORE webinar about recession-proofing. She encourages business owners to exceed expectations in every interaction — and to connect with more people via networking.
“Networking is essential for growing your business,” Julie says. “At a networking event, try to meet five people and follow up with them within 24 hours.”
By developing these connections and staying in touch, you’re creating a web of people who may want to work with you in the future. These new contacts can also refer potential customers to you.
3. Connect with your customers.
Networking can help you find new customers. But retaining existing customers is easier and cheaper than creating new ones.
“You really want to be connecting with customers who already know you,” John says. “Reactivate them. Delight them. It’s not just customer service anymore. Someone has to delight you, and small business owners have a chance to do that.”
John recommends no- or low-cost marketing efforts to stay in touch with customers and provide added value. Mailchimp offers a free way to run small email campaigns. And content marketing offers unlimited opportunities to share information, humor or helpful tips. This content doesn’t have to be fancy. One of John’s clients got more than 30 million views on TikTok with a video his daughter made about his product. Be creative!
4. Explore partnerships and new offerings.
Teamwork makes the dream work. And many small entrepreneurs find that working with other organizations strengthens their businesses.
“A thing I’m seeing a lot of is small businesses putting all their eggs in one basket,” Jill says. “One of the biggest things you can do to make your business recession-proof is to diversify your customer base. A lot of businesses rely heavily on business with one customer or one market area. It leaves them vulnerable.”
She recommends that small businesses explore new markets — locally, statewide or even regionally. And then there’s the potential for working with other businesses.
“Partner with people who are doing similar things,” Jill says. “Maybe you can help fill some of their product pipeline.”
Marketing tied to a cause can also help get the word out about your business and draw more customers in. By partnering with a nonprofit or donating a portion of sales proceeds, you help customers feel like they’re getting more: They receive your good or service and they help a worthy charity.
5. Respond to changing customer needs.
Customer behavior isn’t what it was three years ago. And it changes significantly during a recession. To make your business recession-proof, you need to give the people what they want, how they want it — and where they want it.
“Think about going to your customers,” Julie says. “There are trucks that do dog grooming, there are hair salons, personal trainers, all the food trucks. Any way that you can give that added value to the customer, it makes it easier to do business with you.”
Payment plans, layaway programs, money-back guarantees and extended hours can make your business more attractive to potential customers. And John stresses the importance of giving clients options.
“At a gas pump, you have three choices. That’s a perfect number,” he says. “Have other options; don’t just go to the Dollar General end of your industry. If you’re selling wine, there’s always going to be a cheaper wine you can offer. But you can still have someone who can afford a $90 bottle of wine. So offer the $90 bottle as well as a lower-priced bottle to appeal to more clients.”
6. Invest in your team.
Your greatest asset is your people. During times of economic distress, some companies offer tempting hiring bonuses and attractive benefits. Supporting your employees and ensuring your business is a place they want to work is more important than ever. You don’t want important institutional knowledge to walk out the door.
“People want to work where they feel valued and connected to the mission,” John says. “They want clarity about what’s expected of them, they want to be able to grow, and they want to be given an opportunity to do what they do best.”
Flexibility and the ability to work when and where they want has shifted from a nice to have to a must have for many people. While this isn’t possible in some industries, it’s important to have enough people and to cross-train them. This will enable employees to take time off when necessary and improve work-life balance.
7. Know where your money is and where it can go.
How much of your money is tied up in real estate or equipment? Are your accounts receivable out of control? And just what are you doing each day? Time is money, so how your team spends theirs matters.
Operating at optimum efficiency can make or break a small business, especially during economic upheaval. So you need to know the numbers: How many hours can you bill in a day? How can you decrease spending and daily expenses? Are you negotiating and getting the best price before you make any purchases? Getting down to brass tacks will help you build a financial cushion.
“Always have a cash reserve,” Julie says. “One thing that I recommend is that you put at least 10% of profits back into the business.”
She recommends having six to 12 months of operating expenses on hand. That might feel like an impossible goal, but small changes can build up.
“There are a million things to tweak,” John says. “Like many people who shoot competitively, I load my own ammunition. There are micromovements — if I change the powder or the overall length of the shell — these tiny tweaks can change your overall accuracy. Improving your business efficiency is like that.”
Additional recession-proofing resources for KC entrepreneurs
No matter your industry or the current state of the economy, there are always ways to strengthen your position. Both the Kansas Small Business Development Center at JCCC and the Missouri Small Business Development Center at UMKC offer free, confidential mentoring to guide you on your entrepreneurial journey. And KCSourceLink can connect you with the people and opportunities that can help you learn new skills and bolster your business.
Check out the KCSourceLink Calendar. It’s your one-stop shop for all the Kansas City events and classes for entrepreneurs. And our Resource Navigator lists more than 230 organizations in the KC metro that provide services, mentoring, classes and more to help you reach your business goals.
Not sure where to start? We’ve got your back. Get a free Personal Action Plan to guide your next — or first — steps. Just provide a little information and our knowledgeable Network Navigators will design a to-do list specifically for your business, industry and goals. And did we mention it’s free?