4 ways to protect your business in a recession
The government recently emerged from the longest shutdown in history. Government employees on furlough are still recovering financially from more than a month of lost wages, government agencies are getting back into operation, and the general public is as wary as ever of the government.
In particular, small business owners are concerned that government missteps and gridlock could be signs that an economic recession is on the way.
A recent survey conducted by Nav found that more than 70% of small business owners believe the United States economy is headed for a recession. Of those who believe a recession is coming, 25% said that the government shutdown was their reason to fear. Another 23% cited higher interest rates.
Whatever the reason, it’s clear business owners are worried that a recession is coming. While a recession affects nearly everyone without discretion, small business owners have to be especially cautious, as bleaker economic times can result in a slow in cash flow.
If you’re worried about an impending recession, here are four ways you can prepare.
1. Cut costs
It’s always smart to spend wisely and save for a rainy day, but the benefits may never be as evident as when your business is suffering during an economic crisis.
Time is a priceless commodity for small business owners, but time spent reviewing costs and planning changes or adjustments can be well worth the while.
By reviewing your business spending, you can figure out areas where you can lower or eradicate unnecessary expenses. If you haven’t done this in a while, you may be surprised to see where your money is going.
Between ineffective business tactics and services you’re just not using, there are likely places in your business where you can find cash.
2. Seek financing options
When you’re looking to reduce costs, it may sound counterintuitive to take on an additional monthly payment. Financing a major purchase, however, can make that purchase more manageable and allow you to maintain a cash cushion to help you get through a recession. While paying any amount of interest may turn anyone sour, a $100 monthly payment is easier to swallow than a four or five-figure hit to your bank account.
There are myriad options for business loans and business credit cards, many of which offer rewards that can bring extra value to your business. By selecting carefully, you can help your business spend wisely and grow.
One key step you can take is to review your monthly payments to vendors or creditors. If you’ve been on top of your payments for an extended period of time and have a strong relationship, you may be able to negotiate a lower payment or interest rate. Refinancing other forms of debt can also save you a ton of money each month.
3. Build business credit
Just as small business owners essentially have two households to manage between their personal and work life, they also have two credit profiles to stay on top of: personal and business. While business credit is a bit different than personal credit, it’s just as important to your business as your personal credit is to your home life.
Checking your business credit report and staying on top of your business credit score can help you maintain a strong business credit profile. This will be vital when a rainy economic day comes around and you need to seek emergency loans or other financing options — the better your credit, the more likely you may be to be approved for the financing you need and score the best rates.
Although personal and business credit are different, applying some of the same practices you would use with your personal credit can help build or maintain a stronger business credit profile. Making payments on time or early is one of the heaviest factors used to calculate your score, as well as carrying a low or zero balance on an open account.
4. Be wise about inventory
The base problem in a recession is a decrease in demand for certain consumer products. Unless you deal in a truly recession-proof industry, you will almost definitely see a decline in demand for your product and a subsequent loss of cash flow.
If you’ve taken the time and initiative to build your savings and cut unnecessary spending, you may have a bit of a cushion for when things take a dive. However, having excess inventory on your shelves can lead to larger losses, especially if your product is perishable.
Keeping a close eye on sales numbers and forecasting can help you stay on top of this issue and avoid overspending, especially if a recession hits.
By staying informed on your business’ performance and keeping a hand on the pulse of the economy, you can buy yourself some time to prepare. Through careful planning, disciplined spending, and best practices regarding your business credit, you can put yourself in a strong position to ride out the storm and rebound.