As a small business owner, the thought of a recession can be daunting. However, preparing your business for a downturn is essential with unpredictable markets and the potential for reduced consumer spending.
Many analysts predict that a recession or economic downturn is highly likely, and this comes on top of several years of difficult business conditions throughout the Covid-19 pandemic.
So it is essential to prepare, and there are specific steps you can take now to protect your small business from any future financial hardships and stay afloat.
This is the first of four articles where we’ll provide you with business strategies, practical tips, and creative ‘survive and thrive thinking’ on how to plan ahead and survive a recession.
Let’s begin with a description of an economic recession.
Investopedia describes a recession as ‘a significant, widespread, and prolonged downturn in economic activity.’ An economic recession is generally defined as two consecutive quarters of negative growth in the gross domestic product (GDP). Consequently, it is characterized by increased unemployment as consumer spending decreases and the economy slows down.
Small businesses are especially vulnerable as they may experience decreased demand for their products or services, reduced access to credit and funding, and increased competition from larger, more established companies. However, some may be able to weather the storm of a recession by being proactive and adapting to changing economic conditions. This can include diversifying their revenue streams, reducing expenses, seeking government assistance, and building solid relationships with suppliers and customers.
If the analysts are right and we go into recession, it can be particularly problematic for micro-business owners and self-employed people.
I want to take you through some concepts that could mean the difference between surviving or not surviving an economic downturn.
Firstly, patience is required to keep your business afloat. Panicking here will destroy your business. You must have yoga type mindset to operate successfully. You need to have courage through this time as well.
Everyone went through Covid times, and the owners that had courage, as well as patience, stood tall in the face of that monster. They did this through creative thinking, challenging themselves with new “outside the box” ideas.
Some of you may have experienced the great recession of 2008. If so, you will better appreciate what I am about to share with you.
Here is a strategy that can help make a recession-proof business.
One way to prepare for a recession and weather the storm is to create an emergency fund.
An emergency fund is a designated piggy bank of sorts, where you save money each month to provide a cushion of funds that you can use if and when needed.
Having an emergency fund can help you stay afloat during tough economic times and provide peace of mind that there is money available if a recession comes your way.
It’s essential to start saving now to have enough in your emergency fund.
Start small by putting a little away each month, gradually increasing the amount over time. This way, you’ll have a healthy amount in your fund before the storm hits.
However, this is easier said than done.
There is always the belief or hope that a downturn will never happen, so the temptation is to dip into this fund. Absolutely Not! This fund is untouchable.
The key here is a strong mindset. You have to develop a saving mindset through good times to have enough to survive and even thrive in a recession.
Having an emergency fund during a recession is invaluable for small business owners.
When the economy is struggling, and many businesses are fighting to stay afloat, having an emergency fund can make all the difference.
An emergency fund provides a small business owner with a financial cushion to help:
It can help offset any losses incurred during a recession and give small business owners peace of mind that they have something to fall back on should their profits take a hit.
If you don’t already have one, don’t delay. Set one up now.
Saving for an emergency fund is one of the best ways to protect your business from economic downturns. It takes discipline and dedication, but it is worth the effort.
With careful planning and dedication, you can start saving for an emergency fund to help your small business survive economic hardship.
A savings account is an excellent place to keep your small business emergency fund, where the money can be easily accessed if needed.
This provides a cushion between you and any potential financial hardships that may arise due to hard economic times.
Keeping your funds in a savings account also allows you to benefit from any potential interest earned on the balance while ensuring that your money remains safe and secure.
Access to this money can make all the difference during tough times, so it is vital to ensure it is kept safely away for when you need it.
We all know that the word ‘recession’ is scary for every business. However, it doesn’t need you to be shaking in your boots if you prepare for it.
In conclusion, it is important to be proactive and start saving early, even if it is just a small amount each month. Consider setting up an automatic transfer from your checking to savings, as this will help you stay on track with saving goals.
Our next article will look at strategies to cut spending and increase cash flow.
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