How to Protect Your Small Business from Recession

Joan Nadene

February 24, 2023

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Are we headed for a recession? Is the economy crashing? These questions might make you feel like hiding under the covers, but don’t worry. Coping with a recession can be tough, but it can also be ultimately rewarding once the storm clears. Although everyone is affected, small and medium businesses are often hit the hardest. So, buckle up and get ready to weather the storm, because there’s nothing like the satisfaction of overcoming tough times and coming out on top.

Before anything else, however, let us clear up what a recession is and if we are headed toward it.

What Is a Recession?

A recession is a significant and sustained decline in economic activity, characterized by a decrease in GDP (gross domestic product), employment rates, and income levels. Recessions occur due to a variety of factors, including a drop in consumer spending, a decrease in investment, or an increase in inflation rates. The effects of a recession can be widespread, leading to business closures, layoffs, and a decrease in consumer confidence.

Are We Headed for a Recession?

Despite the U.S. economy shrinking in the first and second quarters of 2022, recent reports from early Q3 indicate growth, which may suggest that a recession is not imminent. However, the rising inflation rates, alongside this growth, create a perplexing situation for policymakers and small business owners alike.

In times like these, it’s crucial not to get swayed by the news and concentrate on what’s happening to your business. 

What Small and Medium Businesses Can Do

It is impossible to predict the future with certainty, so it is important to stay informed about economic developments and take necessary precautions to protect oneself financially. For small and medium businesses, this means:

  1. Securing financing before you need it. Building up cash reserves and exploring various financing options can be invaluable in helping your business weather an economic downturn. Lenders anticipate the next recession and may tighten lending standards when it begins. To prepare, secure financing early. Seeking the most affordable financing, like bank loans or crowdfunding, can take time. Gather necessary documents, address credit issues, and assess your options now. Also, consider getting a business credit card instead of relying on personal credit. Business credit cards can avoid reporting activity to personal credit reports (unless in default) and help build business credit.
  2. Being upfront with your partners and suppliers. When safeguarding your small business during a recession, the key is to be proactive. Don’t wait for problems to arise. Instead, take action now to protect your company. One way to do this is by building up your cash reserves, but equally important is keeping your partners and suppliers in the loop. The last thing you want during tough economic times is uncertainty, so eliminate it by being transparent and upfront about any bad news. By setting expectations early, you can reduce the impact of potential problems and ensure your business is better equipped to weather the storm.
  3. Rethinking big investments. Reassess your spending habits and cash flow strategies. While reducing spending can theoretically prolong a recession, it’s crucial to prioritize your company’s interests and ride out the storm. This may mean putting off larger purchases or making the most of your existing resources to ensure your business survives until the next economic upturn. Remember, being financially conservative during tough times can pay off in the long run and set you up for success in the future.
  4. Having an agile workforce. Layoffs can have a devastating impact, not just on the employees let go but also on the business as a whole. The repercussions can be far-reaching, from disrupting day-to-day operations to damaging company culture and brand reputation. That’s why it’s crucial to think carefully about hiring decisions, particularly during uncertain economic times. Consider bringing on contractors or outsourcing some business processes. By doing so, you can keep your costs low, and minimize the risk of having to lay off employees and the negative impact that comes with it. Remember, being proactive and thoughtful in your hiring strategy can help safeguard your business’s future.

In summary, a recession can be a challenging time for small businesses, but it’s not all doom and gloom. By taking proactive steps to protect your finances, such as securing financing and reassessing your spending habits, you can weather the storm and emerge stronger on the other side. With the right mindset and approach, nurturing your relationships with partners and suppliers, and partnering with the right companies, you can not only survive but thrive in the face of economic uncertainty. So stay positive, stay focused, and keep pushing forward – your business’s future depends on it.

Joan Nadene

Joan Nadene

Joan Nadene, a seasoned content writer with a decade of experience in the field of outsourced work, wields a strong background in collaborating with offshore outsourcing companies and serving clients across diverse industries in the US and Australia. Joan has been an invaluable part of the CoDev team for over 7 years.

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