How to Recession Proof your Small Business

Last Updated:
August 4, 2022
Author:
Mike

Recession Proof your Small Business

According to the National Bureau of Economic Research, the US has a recession every 6 years on average. This is much more common than most people realize, especially as business owners are likely to encounter several of them in their lifetime. However, business owners and managers must prepare their businesses for survival. Below are several ways to recession proof your small business, so you can survive the next one.

1. Have a Cash Flow Plan

During a recession cash flow decreases, therefore it is important to have a cash flow plan. Start by ensuring you know your current cash balances, monthly sources, and uses of cash. Then, review previous cash flow as well. Use this data to create a cash flow forecast for the next quarter. This allows your management team to monitor cash flow, and notice any variances that may alert you to a recession.

2. Assess your Workforce

Review the number of employees you have and their skill sets. Ensure that they align with your business needs and future plans. Make adjustments so that employees are working efficiently to maximize their potential.

3. Stick to your Budget

This is key to surviving a recession. Obviously, it makes sense to operate within your budget, but many businesses operate close to the upper end of their budget. Ensuring that you can keep costs in the lower end of your budget offers extra security in the event of a recession. Put the extra money you save into a small business emergency fund. After all, some recessions like the one associated with the pandemic come without any warning.

4. Focus on Improving Employees' Skills

In a recession your business must be flexible which means your employees should also be able to pivot and change if needed. Ensure you offer your staff training, and opportunities to improve their skills to help with this. Better yet, investing in employee improvement also builds morale and loyalty. This can really help your business succeed in tough times.

5. Track KPIs

Tracking key performance indicators or KPIs is crucial to business success. Continue to monitor and track marketing campaigns and results. Only continue campaigns that are achieving the desired results. Any that aren’t should be stopped, or adjusted.

6. Assess your Businesses Risk Tolerance

Performing an in-depth risk assessment allows you to review how much risk your business can currently handle. As part of this assessment, you should review your leaders, staff, and systems to see how adaptable they are, and if they can deal with added pressure. Review the hard costs of missing financial targets as well as soft costs like brand reputation. With these factors in mind, decide how much risk your small business can handle. Then, create a range of tolerance, and metrics for measuring the risk level.

7. Create an Action Plan

To help recession proof your small business, do some scenario planning. Use these scenarios to create and develop action plans well before a crisis hits. These action plans can minimize errors, and reduce stress-led decisions in the event of an emergency. Consider asking employees for their input, as they will be the ones to implement them when needed.

8. Reduce Overhead

In the event of a recession, your overhead expenses are likely to remain or increase. Therefore, it is in your best interest to reduce overhead where you can. This could include renegotiating contracts with suppliers, releasing low margin/high problem customers, changing vendors, or temporarily reducing staff perks. You could also consider downsizing your office and switching staff to a remote or hybrid work model where possible.

Creating a recession proof small business requires planning and action beforehand. As a business owner, consider the tips above to secure your business's future through difficult times.

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