How can you protect yourself and your business from the impact on an economic downturn during times of struggle? Given our size and the limitations that put on our cash reserves and credit, small businesses tend to take a major hit in recessions. Now is the best time to prepare while economic conditions are still relatively good to guarantee success in the long-term.
Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.
Yellow Lights Are Flashing
75% of economists predict that the US economy will enter a recession by 2021. Because consumer debt is higher now than right before the Great Recession of 2007-9, the next recession could be deeper and more severe than the previous one, according to some economists. A global trade war is ramping up and the skyrocketing federal debt also means our ability to fight one is less than it was then.
Recessions Hit Small Businesses the Hardest
A study by the New York Fed showed that recessions hit smaller firms much harder than larger ones. This should come a no real surprise since small businesses do not have access to large cash reservice like large corporations often have. Therefore, small businesses a more difficult time weathering declining demand. Bank loans are harder to get in a recession, and this pullback in bank lending can sap small firms’ ability to cover their operational expenses. As a result, there is an increase in bankruptcies and closures.
A Downturn Is Inevitable
Given the decade of the current expansion, few small business owners have yet to weather an economic storm. It’s easy to see how one could be lulled into a false sense of security. Complacency is one of the key factors that keep businesses from reacting soon enough. Making contingency plans for a downturn are as important as making plans for growth in order to protect yourself. Failing to do either can severely impact your business.
How to Find Protection During a Downturn
We like to share the story of a client of ours. Jacob was in business during the Great Recession. He runs a successful insurance business
4 Proven Tips to Weather a Downturn
Jacob learned some important lessons that can be applied to all small businesses.
- New revenue streams are key – If you can grow your topline by finding new and creative ways to solve problems allows you to offer more, better, or more relevant solutions to your customers. Is there money you don’t need to be spending?
- Always test your business, annually – This isn’t just smart advice for protecting against a downside, but also, for succeeding in the long-term. An annual strategic review, even if it’s just a simple SWOT analysis, can help. Understanding your exposure (weaknesses), as well as, your opportunities (new revenue) can help you plan for both growth and decline.
- Protect your niche - It’s important that you do not lose or dilute your core capabilities while chasing sales opportunities. Protect your core. It will come back, and you will want to be poised to capitalize on it.
- Be creative in your offerings – Can you partner with other companies to expand your reach or increase your efficiency? Can you offer a revised product or new product offering that is better suited for a recessionary environment? Market yourself properly.
In summary, it is important to remember that recessions don’t last forever. The economy will come back. You just need to make sure that you have a plan to manage a downturn and that you build enough reserves to ensure a protection during downturns.