- a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Are we in a recession? Experts, including Jonathan Ponciano at Forbes, say yes.
The good news is that some industries tend to thrive in a recession, including healthcare, financial advisors and accountants, cybersecurity, and tech support, says Tony Robbins. He lists those areas among the 12 Best Businesses, that can continue to flourish in a recession, noting that the best businesses in a down economy actually run on “purpose, vision, and great leadership.” Investopedia concurs that some businesses actually thrive in a recession.
On the other hand, many industries will be impacted by the recession. CNBC ran the numbers to see which businesses were hardest hit by the recession in 2009. They discovered construction materials, publishing and printing, and furniture and home furnishing stores among them. And, unfortunately, the current one is unlike any other we’ve ever experienced in US history.
What can we learn from this data?
We have to prepare.
Anything is possible. Your business could thrive in a recession even if it’s on that list of previous impacted industries. It could also experience a negative downturn for a short season, causing a financial strain. We want you to be prepared by mitigating the risk. Let’s look at some key steps that you should take now.
11 Steps to Recession-proof your Small Business
Determine if you’re a needs-based product / service.
If not, consider offering something for or position your business to support needs-based businesses. Or, see if you can transition into a needs-based business solution. Needs-based businesses are driven by customer needs that do not fluctuate. Customers will continue to purchase these necessary products and services in spite of a down economy.
Diversify revenue streams.
This is the most important lesson that many small business owners learned during the 2020 COVID pandemic. The same lesson applies in an economic recession. By diversifying your revenue streams, you’ll have a little more security in your cash flow. If you’re planning to add a new revenue stream, then consider focusing on a needs-based product or service offering.
Diversify your client pool.
Considering that many industries are impacted in a recession (both positively and negatively), it is wise to expand your client pool and work with different types of people. If you’ve niched your business down to one specific industry and type of person within that industry then you are at a higher risk for impact. Consider expanding your clientele to those who live in different areas, work in a variety of industries, are from a wide range of demographics, and engage at different levels of service. This will bring more security should one particular type of client be impacted by sudden market change.
Be flexible and open to change.
The sooner you accept that things might look different, the sooner you’ll recover from any negative situation. Being agile in process, timelines, vendors, team members, customers, etc. is critical. Those who are rigid and unwilling to adjust in economic hard times end up paying a higher price. (Some might call this stubbornness.)
Put as much cash as you can in reserve.
If you don’t currently have a business savings account, then get one started now. We recommend having at least 3 months of operating capital in your business savings with a goal of a 6 month reserve. Recessions are unpredictable and it’s important to be as prepared as possible. The 2020 recession only lasted 3-months and was the shortest in history. The 2008 recession lasted 18 months. According to the Washington post, the average recession lasts 11 months.
Establish your credit worthiness in case of an emergency.
Though we are not fans of running a business on debt, we do recommend having an emergency credit option should you need access to funds to help carry you over in a tough season, like a recession. If you’re in an industry where your business will thrive in a recession, then it’s possible that you’ll need to buy more goods/inventory or hire more help. Credit will be necessary to make this happen.
Reduce your overhead costs now to run a more lean machine.
Go through your company expenses line by line. I know it’s time consuming, but this is necessary for recession preparation. As you go through each expense, ask yourself if the product/service is serving you well. Is it a need or a luxury? Something you can do without for a season? Many times I hear business owners spending money on small subscriptions that just get overlooked, but never used. Or, they buy items/services from friends or family at a higher price just to be supportive, but there is no real need. We believe in generosity and want you to support those you believe in, but we also want you to spend your hard earned dollars wisely as you prepare for this recession. Reducing costs can be a temporary adjustment and oftentimes allows business owners to survive and get back to a place where they can be generous again!
Focus on client retention.
When was the last time you checked in on your clients? How are they doing? What do they need right now? Get in the weeds with your customers and find out if they are happy with your product/service. Reassure them. Go above and beyond for them. Even if their struggles are personal and/or unrelated to what you offer—just be there for them. These people are your customers, contributing to your personal success. In tough seasons (and it’s been a really tough season for many lately), your customers will always remember how you made them feel.
Research your industry.
What happened in the last market crash? Who has been in your industry for a long time that you can lean into? Wisdom is your greatest asset. We also suggest doing some Google searching on the following questions:
- What do people buy during a recession?
- How do you make money during a recession?
- What does a recession do to the average person?
These are just a few important answers to wrap your head around when preparing for the coming season. Think about what conversations your audience may be having at home and what they might be looking for in the coming months.
Do not panic.
It is hard to stay calm when there are so many moving parts and unpredictable impacts of a recession. With inflated costs, hardship stories trending, and warnings of market crashes buzzing around, it can be hard to remain calm. But you must do what it takes to keep your peace and joy. Keep showing up to serve and live out your purpose. The fact that you read this entire blog means that you’re doing better than most! Knowledge will help you make smart choices. And, keeping calm will allow you to make those choices in a timely manner.
Rely on your community.
When times are hard, we need community more than ever! Community brings an outside perspective, fresh ideas, and business insight. When times get tough, we need a safe place to be honest and get encouragement. Sometimes (especially in hard seasons) we tell ourselves lies and need others to remind us of the truth. A vibrant community can be just what we need to push through a hard season and land on the other side stronger, wiser, and better positioned than before.
We encourage you to navigate this recession with a group of motivated, high-achieving women like yourself! Stay connected with SOWBO for resources, training sessions, and networking.