Running a successful small business is stressful enough without worrying about how to make money in a recession. Thankfully, there are ways to prepare your small business for the impact of a recession. You can likely bring your business unscathed out of a recession by preparing for troubling economic seasons.
Check out our advice below about small business recession.
What Is a Recession?
The economy is considered in a recession when a substantial decline in economic activity extends across all aspects of the economy and continues for several months. Knowing this definition, we can readily appreciate the hardship of a small business recession.
Effects of Recession on Small Businesses
Recessions are times of complex economic hardship with repercussions on every market level. Recessions are hard on small businesses because they typically do not have the safety net that large corporations do. Large corporations may be able to go through seasons of economic hardship and come out the other side even stronger than before because they rely on built-up wealth reserves.
One of the biggest struggles during a recession for small businesses and their customers is inflation. Inflation is the steady increase of prices over a period of time. These price increases apply to both consumers and retailers. Therefore, inflation negatively affects everyone in the economy.
The products you sell will increase in price, so you will have to raise the prices for your customers. Although your customers will pay more, you will make the same or even less. You may even make less to keep your costs low and customers happy.
Lower Consumer Spending
Consumers often do not have the flexibility in their budgets during a recession that they might have during a time of economic prosperity. This lack of consumer funds can damage small businesses that focus their sales on non-essentials. Consumers may cut back on anything ‘extra’ to stretch their money.
This lower spending will lead to fewer sales for your business. Fewer sales can result in unsold inventory. Unsold inventory is dead money that you are unable to use.
How To Prepare for a Recession: 4 Things Small Business Should Do Now
Recessions can feel scary to small business owners. Thankfully, there are ways to prepare. Today we are addressing four primary tactics that small businesses have available to employ for recessions.
Stay Aware of Owed Money
Often owning a business means keeping accounts with other companies. Sometimes, businesses will have invoices they owe you that are overdue but have missed your attention. Check on your books often and stay on top of your invoices. Reach out to businesses with dues owed to you and stay on top of the amounts you might owe.
This practice will avoid surprises during a recession and get any extra money in your pocket that you may find beneficial. Successful small businesses have healthy and honest relationships with one another.
Consider Taking Out a Small Business Loan
Small business loans can be a lifeline in times of recession. If there are economic signs of hard times ahead, it may not be a bad idea to take one out. Just because you take out a small business loan does not mean that you have to use it. You can always sit on it as a cushion and pay it off as scheduled. It will also build a strong credit history.
The crucial aspect of loans is that you must be able to make on-time payments towards the loan. On-time payments build positive credit history and maintain your reputation as a trustworthy borrower.
Customers are the lifeline of any small business. It is crucial to maintain excellent relationships with customers during a time of recession. Often, this means keeping your line of communication open and honest. Customers may express frustration over rising prices or unavailable items. Communicate with them that you will always strive to have acceptable prices and products available.
Agility when owning a business is a vital trait. The economy is constantly changing. This volatility means we will occasionally have to change our strategies for success. Even if you have had the same practices for years, try switching it up if you’re not seeing the results you would like. There is nothing to lose when being flexible and adaptable.
Business Strategy During Recession in 2023
Among these discussions of recession, one seems extra prevalent: the potential 2023 recession. Although no one can predict the future with certainty, it is not looking good. The crucial thing to remember in the months leading up to this time is that positivity is vital. An optimistic outlook can brighten everything else around you. Tough times are inevitable and will always come, but a bright disposition can keep you looking ahead into the future.
Which Businesses Survive Recession: Success Lessons From the Last Recession
There are some recession proof small businesses. Those falling in this category often sell necessities or items that will be helpful in the event of a downturn. However, don’t fret if your business doesn’t specialize in one of these specific niche markets. Even those selling non-essentials can survive recessions with proper preparations.
The central aspect that brought many above the water during past recessions was their flexibility despite the easy route of staying stagnant. When we know a particular tactic has worked for a long time, it can be hard to convince ourselves to stray from that way, but it may just save your livelihood in the long run.
Recessions are a time of economic hardship for consumers and business owners alike. It is easy to feel overwhelmed and defeated when you are looking at the prospect of economically negative times. Positive outlooks may seem bleak, and the future of your way of life may feel threatened.
However, you can negate the pressure and anxiety by preparing yourself, your business, and your finances for times such as these. We wish you luck in your business endeavors and withstanding any upcoming recessions.