A recession can be a scary time for any small business owner. However, a recession does not mean the end of the world. In fact, having a business means you are able to pivot and react quickly to changing conditions. Keeping an eye on the economic trends and making strategic plans now can help your business thrive even in challenging times.
There are several indicators that point toward an imminent recession, but you don’t have to wait for those red flags to appear before taking action. Preparing your business for a potential recession is one way of safeguarding its future well-being. Here are seven tips that will help you do just that:
Conduct a SWOT Analysis
A SWOT analysis can help you see where your strengths, weaknesses, opportunities, and threats are. You can then use that information to develop actionable strategies for your business. For example, if you’re experiencing a decrease in demand for your product, you might decide to adjust your marketing strategies. Or, if you have a lot of competition, you might decide to increase your marketing efforts so that your product is more visible to your target market.
A SWOT analysis can also help you identify which areas of your business need improvement. You can then create a plan to remedy any issues you discover. If you are prepared for problems before they happen, you can likely avert a crisis before it seriously affects your business.
Diversify Your Income Streams
In addition to your primary source of income, have a few backup plans in place. If a certain product or service you provide isn’t selling well, you can turn to other products for additional income. This will help you ride out the low periods until your primary source of income recovers.
Having multiple income streams also diversifies your risk. If one source of income is negatively impacted by a recession, you can rely on your other sources of income to keep your business going strong. You can also diversify by offering new products or services, or increasing your rates for existing services.
If you are providing a product or service, consider offering variations of that product or service. If you sell apples, for example, you might offer applesauce, apple pies, or apple cider. Diversifying your product offerings can help you weather the storm of a recession. If a certain product isn’t selling well, you can shift your focus to others.
Establish a Buffer Fund
You may want to consider setting up a sort of “rainy day fund” for your business. A buffer fund is a savings account where you put a certain amount of money each month. You can use the money in the account for expenses such as marketing, hiring new employees, or making upgrades to your business when you need it.
It’s important to have a buffer fund in place in case you experience a sharp decline in revenue. If you have a limited amount of money in your savings account, you may be forced to let employees go if revenue is too low. Having a buffer fund in place can help you avoid that situation. You can use the fund to pay employees while you wait for revenue to pick up again.
Know Your Numbers
If you don’t already know your numbers—if you don’t know how much money you bring in each month and how much it costs you to stay in business—it’s time to find out. Now is the time to go over your business plan and financial statements and see how accurate your original numbers are.
If you’re not using software to track your numbers, now is the time to start. Knowing your numbers will help you make strategic decisions for your business. It will also help you prepare for a possible recession. If you’re still trying to figure out your numbers, this may be a sign that your business doesn’t have the financial management needed to stay solvent during a recession.
You should have a plan in place for how to weather a potential recession. That plan should outline how you’re going to handle your finances, pay employees, and deal with tax problems if necessary. If you don’t have an exact plan in mind, consider creating one now. It’s not such a bad idea to bring your plans for dealing with a downturn up to date before the economy dips further into recession territory.
Review and Revise Your Marketing Strategies
If you’re already marketing your business, great! But are you sure your marketing strategies are effective? It’s important to review your marketing plan regularly to make sure you’re reaching the right people, in the right way. If a recession is looming, now is the time to make any needed changes. When funds are tight, you want to make the most of your marketing dollars and discontinue any marketing initiatives that don’t have a good ROI. An ROI, or return on investment, is an indication of whether your marketing activities really do lead to revenue. It’s always essential to be able to prove the value of your marketing activities, but this is especially true if money is tight.
You should regularly update your marketing materials and website. This can help you stay ahead of the competition and reach new customers. If your customers are mainly in one industry or market, they may be especially sensitive to economic downturns. By reaching new customers, you can help ensure your business stays afloat during an economic downturn.
You also want to make sure that your website is ready for a potential recession. Make sure that it displays well on mobile devices. This will help ensure you reach the most potential customers during the downturn.
Hire Carefully During a Recession
If you’re considering hiring new employees during a recession, be careful. Make sure that you’re hiring carefully and that each employee is contributing to the success of your business. You may not be able to hire as many people as you would normally have liked to.
It’s also possible that you may want to reduce the number of employees. This might go against your business’s overall goals, but it might be necessary if you are having a hard time keeping up with payroll. If your business is struggling to pay its employees and doesn’t have the funds to pay unemployment taxes, you may have no choice but to let some employees go. You’ll have to reduce your payroll to the point where you can afford it.
If you do decide to reduce your payroll, make sure that it’s done in a fair way. Don’t base it on the personal feelings of the owner or on personal feelings toward certain employees. It’s important to worry about the business and not about how the employees who are being let go are going to feel.
It will be difficult to reduce your payroll because you know that each employee is contributing, but you may have no choice if you want your business to survive a recession.
Find Ways to Save Money
One of the best things you can do to prepare for a possible recession is to find ways to save money. Look for ways to reduce expenses in every area of your business. You could lower your insurance rates, try negotiating rates with suppliers, or reduce the amount of hours your employees work each week. You may also want to explore ways to reduce your tax liability, including eliminating items from your federal tax return that you don’t use or can’t use.
If you have multiple employees, you may want to consider cutting their hours before laying them off completely. This can help you retain their expertise while also reducing your costs. It’s also a good idea to regularly review your credit card and loan payment schedules. If you can, pay more than what’s due to free up extra cash in your budget.
Review your business plan and/or financial statements to make sure you have enough cash reserves on hand for unexpected expenses during a recession. Your current cash reserves should be equal to or greater than six months’ revenue for your business.
If you employ administrative staff, you may be able to save money by hiring live answering services instead of keeping those positions in-house. This can help you save money on salaries, insurance, and benefits. It can also reduce the amount of time employees spend on non-essential tasks. If your business has a lot of administrative duties, hiring live answering services can help you save money while also increasing customer satisfaction.
Hire Live Answering Services to Save Money on Administrative Staff Costs
A recession can be challenging for any business, but if you’re prepared for it, you can ride out the storm and come out stronger than ever. The tips above can help you prepare for a possible recession and weather the storm when it hits. You can also help your fellow small business owners by sharing these tips.
If you’re ready to get started with a professional answering service, we’re here to help. Contact Answer Aide by calling (866) 427-3500 or by filling out our online form. We’re happy to partner with you to support your business while it grows.