With cities and counties lifting small business restrictions in light of the declining coronavirus numbers, many local businesses are starting to re-open their doors, or at the very least, meet customers outside. In April, many were uncertain about the future, with a survey from Main Street America saying 7.5 million small businesses could close. However, we know that small businesses are made of stronger stuff. If you’re reopening, then it’s natural to wonder how to recession proof your business during this crisis.
While steadily moving toward an open economy is a step in the right direction, nobody knows what the future holds. Even as we move back to reality cautiously, a second wave of infections isn’t completely off the table. To avoid circumstances that may hamper your cash flow, it’s important to learn how to recession proof your business.
Start a Recession Fund (Slowly But Surely)
Planning for a recession can be tough, especially when you’re not quite sure if, when or how it will happen. Having cash set aside specifically for economic downturns can help you recession proof your business.
Even if you’re not quite back to your pre-pandemic income level, you can still start a recession fund. It takes some cash on your end, but it’s one of the best strategies for business survival during a recession.
Rather than putting aside large sums of money a few times a year, start slow. Put a set amount of your earnings every week into a dedicated account for potential recessions. Only touch this cash once a recession hits—don’t use it for operating expenses or payroll when business is good.
You can simplify this process by automating your deposit, rather than manually depositing money on a weekly basis. As a business owner, you’re always short on time. Take this task off your to-do list, while knowing that your money is resting safely.
Explore your banking options and see if you can open an interest-bearing savings account, rather than having your money simply sit there.
Review Your Messaging to Target Profitable Customers (And for Clarity)
The last thing you want during a recession is unclear messaging that misses the mark and doesn’t resonate with customers. You can recession proof your business by taking the time to beef up your marketing and brand with clear and compelling messages.
In a strong economy, consumers and businesses alike are more likely to take a leap of faith on non-essential goods/services. During a recession, though, their wallets naturally get a bit tighter.
Clearly stating the value you bring to the table raises your chances of earning new business. By taking these steps, customers are more likely to view you as essential, rather than simply nice to have.
Remember, always prioritize features over benefits.
Double Down on Existing Customers By Improving Service and Adding Value
Marketing and advertising are undoubtedly essential as you take your business to the next level. But if you’re learning how to recession proof your business, be sure to pay attention to existing customers, too.
As the old saying goes, buying a new customer is five times more expensive than retaining an existing one. While your business grows, gradually take steps to improve the way that you serve them.
Consider how you currently serve your customers, and find relevant, creative ways to bolster that service. Try improving quality, offering new and relevant information, or adding value in a new way. Even if you only had a one-time transaction, consistently provide new information customers might find helpful via email marketing.
By going the extra mile, you not only separate yourself from the competition, but also forge a deeper connection by becoming an essential part of your customers’ lives.
In a way, adding value is a creative way to market your business, too. Satisfied customers will be far more likely to recommend you to friends, family and professional connections.
Diversify Your Business With Multiple Revenue Streams
One way that investors safeguard their stock portfolios is by diversifying their hand with various industries, You can apply the same principle to recession proofing your small business.
Earning income in more than one way will add new revenue streams to your business. By diversifying your revenue streams, you can position your small business to overcome new challenges as the economy changes. It’s difficult to do shortly after starting a business, but as you grow, diversifying revenue should be a priority.
You can start small before taking things to the extreme. If you own a restaurant, start selling a specialty sauce, condiment or ingredient, in addition to dine-in and take-out meals. As a construction business, you can offer seasonal tune-ups or maintenance. If you own a home business, then double down on remote consultations.
However, your new revenue stream doesn’t have to be a tangible good, or even a service. Simply selling much-needed advice, knowledge or trade secrets can also help your business through a recession.
The ability to adapt has already helped many small businesses—which would’ve otherwise come to a grinding halt—continue earning income.
Organize Your Expenses in Order of Necessity
Small businesses have countless expenses, from payroll, to marketing, to operating costs like rent. In a good economy, these expenses can seem like a small price to pay for a booming business. If you’re learning how to recession proof your business, though, you need a different mentality.
When a downturn hits, cutting unnecessary costs is a natural place to start. You can plan ahead by taking inventory of all your business expenses and ordering their priority.
Often, operating costs are non-negotiable—if you stop paying, then you risk losing your ability to generate revenue. Payroll is also essential, though you may not have the demand for all your employees.
While you shouldn’t come to a complete halt, marketing can be one area in which you make some cuts, especially if you can’t fulfill customers’ needs. However, there are other ways to market your business during a pandemic that aren’t as expensive as standard tactics.
Facility upgrades are also important, but not quite necessary when you have larger costs to consider.
By identifying which expenses are essential, which are nice to have, and which can easily be deleted, you’re taking important steps to prepare your small business for a recession.
Find Ways to Stimulate Cash Flow
Business tactics aside, there are important financial steps you can take when you’re considering how to prepare for a recession. Managing cash flow with minimal income can be difficult, but remember, you’re not alone.
The government has taken a proactive stance in helping small businesses through the recent coronavirus-related economic slowdown..
The PPP loan, which incentivised small businesses to retain their employees by offering a forgivable grant (provided they put 75% of the funds toward payroll) helped many businesses keep things moving. While it’s unclear if the government will take similar measures in the future, be sure to look out for new assistance and SBA funding programs.
Additionally, don’t be afraid to explore deferring existing debts and/or payments. Many lenders and banks are offering new options to work with those who need them. Before writing these off as necessary expenses and cutting cash flow, be sure to explore your options.
Get Business Financing (Before You Really Need It)
Business opportunities sprout up as randomly as downturns. During either of these periods, having financing in the form of a business line of credit can be the best tool in your arsenal.
A line of credit isn’t technically a small business loan. While you’ll still get cash to put toward any business expense, you won’t pay interest on the amount you’re approved for. Instead, you can draw cash gradually, and only pay interest on what you take.
You’ll also have the opportunity to draw more as you pay down your existing balance.
This means you can put cash toward any new opportunities that come along, or draw cash to prevent your business from slowing down during a recession.
Acting early is the most important step to take. When your business is growing, you’re far more likely to obtain the rates, terms and amounts that you want. If you wait until a recession to apply for financing, then you may not be able to qualify for the financing your business needs.
Joe Camberato, National’s President, actually contributed to a Forbes Expert Panel article about this topic.
Companies That Have Thrived During Recessions Dig Deeper For Opportunities
While it may seem daunting to survive during a recession, it’s not impossible. In fact, companies that thrived in 2008 and beyond have taught us a lot about how to recession proof your business.
Above all, the bottom line is that you need to adapt to the climate and add enough value to make your business indispensable.
Groupon: Enabling Leisure Expenses By Distributing Coupons Via Email
Unlike most companies facing recession conditions in 2008, Groupon built a thriving business.
Naturally, many people and businesses cut back on spending after losing jobs and/or business. Groupon helped raise consumer confidence levels by distributing coupons via email. Appealing saving offers helped many consumers take advantage of expenses they might otherwise see as non-essential.
This strategy helped not only consumers, but small businesses, too. Thanks to a seamless, universal way to distribute coupons and offers, small businesses successfully attracted new customers.
Netflix: Reinventing the Video Rental Model With Free Streaming Services
Today, we think of Netflix as a streaming platform with a DVD rental add-on. But in the early days, the opposite was true.
Netflix introduced its streaming platform in 2007, just a year before the 2008 recession. This breakthrough business model put popular TV shows and movies at the fingertips of all subscribers.
Over ten years later, this value add has redefined Netflix, making it an essential ingredient for household entertainment. During the recession, when people may have been hesitant to spend on movie tickets or other activities, Netflix was a crucial backup. Now, it’s become synonymous with watching movies and TV at home.
By becoming a daily part of your customers’ lives, you can recession proof your business.
Get the Best Financing Rates, Terms and Amounts Available
Even if you’re still working through a rough stretch, your business will come out on top.
At National, we help business owners like you qualify for the best financing options through a quick, simple and easy process. After one 60-second application, you can learn your options in minutes and get funding in just a few hours.
Remember—an open line of credit could be just what you need next time you encounter a challenge or have an opportunity.
Get started preparing your business by applying now!