How to Prepare for a Recession: 5 Tips for Small Businesses

The U.S. annual inflation rate just reached a 40-year high this past June. Combined with recent COVID-related effects, many small business owners are anxious about the future financial security of their companies. When the economy tanks, small businesses are often the first to feel the effects. A recession can be tough on any business but small businesses are especially vulnerable because of more limited resources and tighter margins, leaving them more susceptible to the effects of diminished economic output, lowered consumer demand, and decreased employment. So what should a small business do in a recession? If you’re a small business owner, it’s important to have a plan in place to prepare for a recession. The Nowell Agency is here to share some tips to help you keep your business afloat during tough economic times.

Business Strategy During Recession Times

What makes a business recession proof? To stay afloat and encourage financial stability during this 2022 economic downturn, small businesses should consider the following tips to prepare for a recession: 

1. Establish a financial plan. One of the first things you should do when a recession hits is to take a close look at your expenses and see where you can cut costs. This may mean trimming back on non-essential employees, specific business practices, or cutting back on your marketing budget. Having a business recession plan will help eliminate unnecessary spending and highlight investment priorities. Whatever you do, make sure you don’t cut corners on quality or customer service – those are two things you can’t afford to skimp on if you want to keep your customers returning and happy.
2. Be flexible with your pricing. During a recession, consumers will be looking for ways to save money wherever they can. If your business offers services or products that can be priced flexibly, now is the time to do it. This will show your customers that you’re willing to work with them to provide affordable solutions without sacrificing quality. Ways that you can offset these costs for your business are to reduce excess inventory, lower overhead costs, implement shorter payment terms for customers, or discount early or advance payment options. 
3. Reduce debt efficiently. Rather than trying to pay all debt off immediately, the best approach is to assess interest rates on your debts and first pay down those with the highest rates. If your financial reserves are already low, you may consider establishing a line of credit or exploring additional financing options. 
4. Get creative. Explore innovative and efficient approaches to your business operations. Specifically, marketing is one area where small businesses can get creative while saving. Instead of opting for traditional (and expensive) methods like TV or print ads, look into more cost-effective options like social media marketing or content marketing. If you get creative with your marketing spend, you can still reach your target audience without breaking the bank.
5. Seek out new opportunities. A recession is actually a great time to seek out new opportunities for growth. When other businesses are scaling back, there may be more room for your business to expand into new markets or territories. Keep an eye out for niches in your industry that you can capitalize on and use this time of economic uncertainty to position yourself for future success. 
6. Maintain comprehensive insurance coverage. One way of having financial protection against losses is insurance coverage that addresses exposures that your business faces. Business interruption insurance, worker’s compensation, and more can ensure you’re covered where you need it the most. 

Recession Proof Your Small Business 2022

Recessions can be tough on any business, but small businesses are especially impacted. If you’re a small business owner, it’s important to have a plan in place for times when the economy takes a turn for the worse. By following these tips, you’ll be better equipped to reduce your financial hardships, weather the recession, and come out thriving on the other side. For further risk management guidance and a free quote on affordable small business insurance that can protect you against losses, contact Nowell Agency today.