How to make your business recession-resistant

Published on Mar 02, 2023

How to make your business recession-resistant

An economic recession on the heels of COVID-19 could be a formidable challenge for small businesses. Inflation and supply chain issues, along with fiscal stimulus policies, have set the stage for a potential recession. How long a recession may last is hard to tell, too.

So what should a business do during a recession? That depends on your industry and finances. Make cuts where you can, spend money wisely, and try not to panic. Ideally, the first step is to make your business recession-resistant. It’s hard to avoid the full force of a recession economy, but there are some steps you can take to brace for challenges.

Focus on your cash reserves

If your business already has strong cash reserves, great. This can be a major boost for your ability to pay off bills and unexpected expenses even if revenue is lower than usual. If you haven’t purposely set aside much cash, you’ll have to get a little more creative about where you find funds. Either way, it’s still possible to find and use your business’ cash strategically amid a recession.

Most businesses should have three months’ worth of savings stored away at a minimum. This provides you with a softer cushion to brace for commerce-disrupting events, such as a drop in purchasing power for consumers or higher expenses within your supply chain. The more cash you can store away now, the better. This may translate into some budgeting challenges in the short-term, but having a robust amount of cash in hand during an economic downturn is essential.

Reel back expenses

Cutting costs can help you weather an economic downturn, so long as you don’t cut off opportunities for growth in the process. Some expenses, such as unused or expensive subscription services, can be a good place to start. Look through your recent business credit card and checking account statements to see where cash outflows are going, for example, subscriptions or other recurring charges for things you don’t use (or could do without). If there are lower-cost options available for utilities, such as a lower tier of internet service or smaller contracts with consultants, consider reeling back those expenses too.

Trimming back on products that don’t sell well can be another avenue to explore. It’s important not to cut off avenues for future growth, however, lest you set yourself back for a post-recession economy. Review sales data for your inventory to see if there are slow-sellers you can cut for now. It’s better to focus on your best-selling items and loss leaders: the costs of producing non-selling items can be diverted to your cash reserves.

Know where not to cut

Marketing and advertising are two of the first places many companies look to when sizing up cost savings opportunities. Cutting off your marketing efforts can be unwise, however, since this is how most new customers will hear of your business (and how recurring customers will remember your name). It’s important not to cull your campaigns indiscriminately. Campaigns that drive real traffic to your site or customer conversions should be kept active, even if they’re more expensive than other efforts. Those that don’t deliver value, even if they’re inexpensive, aren’t as important comparatively. 

Sales can also be an expensive component of your business. Without a robust sales strategy, and the employees to execute it, you may lose existing customers or struggle to find new ones. These expenses are the cost of doing business, and aren’t the first place to look with trimming your budget.

Right-size your expectations

What businesses will do well during a recession are those that can adapt. It’s hard to recalibrate your goals, be they financial or growth-oriented, when a recession hits. Business owners have to reevaluate their business’ capabilities when unexpected (and unpredictable) economic conditions appear.

When a recession cuts into your bottom line, you have to adjust your sales and revenue forecasts. It’s not realistic to try to hit the same targets you may have set during more economically favorable times. Depending on how bad the economy could get in a recession (and what industry it hits hardest), you may want to focus exclusively on staying afloat rather than growth.

Resiliency means being methodical

Turbulent economies hit small and medium-sized businesses particularly hard. Margins may already be thin, and the lingering supply chain issues that began in 2020 are still here. There’s no such thing as a recession-proof business, although there are some that can bear the brunt better than others. There are steps you can take to shore up your business in the face of a recession despite these challenges. How do you withstand a recession? Start with solid cash reserves, lean budgeting, and a focus on what drives your business revenue can help you better prepare yourself for the unknown.

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