Small businesses are the backbone of the economy, but they take the biggest hits during a recession. Often these businesses lack the level of financial backing to survive a downturn.
As a small business owner, you must develop a strategy to weather the storm. A recession can spell doom for unprepared businesses. And while there are mixed opinions about whether we’re in a recession this year, knowing how to navigate and survive an economic downturn is a skill every business owner should possess.
Besides, a recession has occurred on average every three and a half years since 1857. So, while we may not see one this year, we’ll likely see one soon.
In this article, we discuss tips and strategies small and medium-sized enterprises can adopt to stay in business during a recession.
1. Prepare for a Recession
The best way to survive a recession is to prepare for one—especially if you are a small business. Recession is brutal, and organizations with the least cushion are the first to feel it. So to ensure you’re not just surviving, plan.
The first thing to do is to beef up your cash reserves. To achieve this, you must spend less and save more. You also need to work towards being debt free because debt is a burden.
Using economic research, decide when to buy inventory and make strategic moves to benefit your business. This way, you can stay ahead of the curve and position your business for growth.
For example, Dollar Tree, the US discount brick-and-mortar retailer, gained popularity during the Great Recession by selling essential household goods at low prices.
You can adopt a similar strategy if it aligns with your values and business goals.
2. Review Your Business
When you plan, you are better able to handle difficult times. Reviewing your business helps identify areas of improvement. These improvements can be the difference between staying afloat and closing your doors forever.
During the review, you should consider your organizational structure. For instance, sole proprietors are personally responsible for all business debts and liabilities, making them more vulnerable to financial difficulties during a recession.
On the other hand, LLCs are separate legal entities from their owners. This can protect from personal liability for business debts and obligations.
You should also implement an internal audit process. This process can help identify risk areas and ensure compliance and legal requirements are met. It can also help identify areas where processes can be improved to increase efficiency and reduce costs.
3. Minimize Expenses
Speaking of reducing costs, we’ve discussed the need to reduce costs in the first two tips. But it still needs to be emphasized. Lowering your spending is one of the most effective ways to increase profits. Plus, during a recession, you need to curb your expenses.
Look for ways to reduce overhead or office supplies costs. It doesn’t matter how small the cut is— saving can make a big difference.
A logical case where you can cut costs is deploying IVR calls instead of live agents. IVR systems help SMEs reduce costs by automating routine customer interactions. As a result, you can free up human resources for more critical tasks. These cost savings can be especially beneficial during a recession when businesses need to tighten budgets.
4. Diversify Your Services or Product Offering
During the recession of 2008, Netflix introduced its streaming service to counter the decline of video rental stores. Offering access to an entire movie library for a low monthly fee appealed to consumers with limited entertainment budgets.
So Netflix increased its membership subscriptions at a record rate when other companies struggled to remain profitable.
We are not saying you will become an industry leader like Netflix. But diversifying during a recession could be an effective way to survive the recession. Let’s say you run a clothing store. You could start selling online to reach new customers. Expanding your client base can mitigate some of the effects of the recession.
That’s why you must invest in solutions that offer flexibility and mobility, like a small business phone number. You can forward your virtual phone number to multiple devices or locations, allowing your employees and you to stay connected no matter where they are.
5. Strengthen Customer Relationships
Maintaining an existing customer costs much less than acquiring a new one, so it’s vital to maintain and strengthen relationships with the customers you already have.
Don’t give them a reason to consider patronizing your competitors. Take the time to listen to them and understand their pain. Find out if they are satisfied with your products or services or how you can improve their experience.
If you’re going to increase prices or introduce new charges, communicate it well in advance. Being honest with your customers will build trust.
Also, customers tend to prioritize supporting local businesses during a recession, so improving your local branding can help you score points. This means everything from your shop’s signage to your packaging.
Even something as seemingly minor as your website’s domain name can have a massive impact on your local branding. For instance, if your business is in Australia, buying an AU domain name tells your customers you are a local business.
Closing Thoughts
SMEs also need to network with other enterprises in the industry. Networking allows you to access resources and exchange ideas with other SMEs. In a recession, this can be invaluable.
A recession is not the finest time for many businesses, but small companies feel its impact more acutely.
Successfully navigating a recession requires strategic planning, prudent financial management, customer focus, and adaptability. Every business is unique, so customize these tips to align with your specific industry, market conditions, and organizational needs.
