Recession Proof Your Small Business
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One of the most daunting prospects you may face as a small business owner is the possibility of a recession. A recession can be especially difficult for small businesses due to limited resources, and many may struggle to stay afloat during a downturn. Economists predict a 61% chance of a recession this year, so it’s best to prepare.
If you are concerned, there are proactive steps you can take to now recession-proof your small business and protect yourself against financial challenges.
First, it’s essential to understand what a recession is and how it can impact business. A recession is a time of economic downturn indicated by a decrease in the gross domestic product (GDP), high unemployment rates, and a decline in business activity.
A Recession is a time of economic downturn indicated by a decrease in the gross domestic product (GDP), high unemployment rates, and a decline in business activity.
During a recession, consumers historically cut back on spending, which can decrease demand for goods and services and have a domino effect on business operations. Reduced demand may lead to layoffs, declining profits, and even business closures.
So, how can you protect your small business during a recession? Here are some tips to consider:
Diversify Your Revenue Streams
If your business relies on a single source of income, you may be more vulnerable to economic fluctuations. Consider diversifying your revenue streams by offering a range of products or services or seeking new markets or customer bases, which can cushion the impact of a recession on your business. Feel free to get creative. Our blog, 5 Revenue Generation Tips While The Studio’s Closed, was written at the height of the pandemic, but many tips are highly relevant to revenue stream diversifications, recession or not.
Build Up Your Cash Reserves
A cash cushion provides a financial safety net for your business during difficult times. During good economic times, try to save as much money as possible so that you have a reserve to draw from during a recession. Cash reserves can help you to cover expenses and keep your business running while you weather the storm. And we get it: easier said than done. But you will be amazed how saving a little here, and there will add up over time. In fact, we’re big fans of the ‘Pay Yourself First’ principle. The concept of paying yourself first means you pay yourself – usually via automatic savings – before you do any other spending, prioritizing long-term financial well-being. The principle is most often seen in personal finance circles, but the concept works well for any financial situation. We’ll have much more on Paying Yourself First in future blogs, including some free resources, very soon, we promise.
See If You Qualify For An Employee Retention Credit (ERC):
Developed to support employers who kept employees on payroll throughout 2020 and for the first three quarters of 2021, the Employee Retention Credit (ERC) offers a generous payroll tax refund through the IRS. If your small business is eligible, it can receive a refund. The estimated breakdown is as follows:
- $5,000 per employee for all of 2020
- For each quarter for Q1 through Q3 of 2021, up to $7,000 per employee kept on the payroll.
Learn more about the ERC on the IRS website.
At no cost to you, see if your business qualifies for the ERC by filling out the form on the Innovation Refunds website by clicking the button below:
Reduce Your Expenses
Find ways to cut costs and streamline your operations. This may include negotiating lower rates with suppliers, reducing inventory, or cutting back on non-essential expenses.
Every little bit helps, and by reducing your expenses, you can improve your bottom line and make your business more resilient during a recession.
Focus On Customer Retention
Attracting new customers during a recession may be more challenging. So instead of new business, focus on retaining your existing customer base. Offer excellent customer service, consider offering loyalty programs, and look for ways to add value for your customers. Remember: Word of mouth is a powerful marketing tool. Happy customers often lead to new referrals.
Stay Up To Date With Economic Trends
It’s essential to stay informed about economic conditions and how they may impact your business. Understanding economic trends can help you to make informed decisions and adjust your business strategy as needed. Consider subscribing to industry newsletters, following relevant and reputable news sources, and staying in touch with your local chamber of commerce or small business development center.
Seek Out Financial Assistance
If your business is struggling during a recession, financial aid may be available to help you weather the storm. This may include loans, grants, or other forms of financial support. Do your research, shop around, and explore all of your options.
By following these tips, you can take proactive steps to recession-proof your small business and protect yourself against economic challenges. While a recession can be a tough and uncertain time, planning and making smart business decisions can increase your chances of survival and even come out stronger on the other side.