Marketing During a Recession: Part 3 – How to Prepare Your Business for a Recession
- Why Preparing for a Recession Is Crucial
- 7 Tips on How to Prepare Your Business for a Recession
According to a survey by JPMorgan Chase, 65% of midsize businesses and 61% of small businesses are anticipating a recession this year. The reality of an economic downturn in 2023 is growing with each passing day. Over the last several months, the Federal Reserve has consistently raised interest rates to combat skyrocketing inflation. But these aggressive efforts could end up slowing economic activity, making it necessary for you to learn how to prepare your business for a recession…
For many small and midsize businesses (SMBs), the thought of preparing for a recession is scary. After all, many are just starting to recover from the crippling effects of the COVID-19 pandemic.
The good news is there are things you can do to future-proof your business for a recession in 2023.
Let’s talk about why preparation is key and what tips you should start implementing ASAP.
Why Preparing for a Recession Is Crucial
As you probably know already, a recession is usually a prolonged period of reduced economic activity that can significantly impact business revenues. Preparing for a recession is an ideal way to future-proof your business and ensure it remains running successfully—regardless of the state of the economy. Future-proofing your business allows you to stay afloat despite external factors and continue providing the goods or services your market needs. Plus, learning how to prepare your business for a recession can help you maximize the unique business opportunities that such times present.
7 Tips on How to Prepare Your Business for a Recession
Here are some practical tips on how you can start preparing your business for a recession…
1. Manage Your Cash Flow
Cash flow is the lifeblood of every business. How your revenues flow into and out of your business can break or make your company during a recession. With expenses anticipated to be high and sales lower than usual, you are likely to encounter tight revenues, which is why you need to implement strategies to protect your cash flow. Some of the easy tips for managing your cash flow include:
- Staying up to date with invoice payments and following up on past-due invoices from clients
- Keeping three to six months' equivalent of expenses and emergency saving funds
- Collecting deposits for high-paying jobs upfront to minimize risks of non-payments
- Look for ways to reduce your inventory costs without affecting quality
- Renegotiate agreements to cut payment amounts
- Consider a loan or business line of credit, and apply for grants
2. Reduce Unnecessary Expenses
With US inflation surging to a 40-year high, costs are likely to soar, further complicating cash flow challenges for most SMBs. You can future-proof your business by cutting all unnecessary business expenses eating into your cash flows. Undertake a candid evaluation of business costs and identify the expenses to trim without impacting vital business operations. Some of the tips to put costly spending on hold include:
- Cutting all discretionary spending such as maintenance, training, R&D, vacation costs, and luxury items
- Reducing overhead and wages
- Outsource some essential tasks such as IT, accounting, sales, and marketing
3. Secure Financing Early
Throughout the lifespan of a recession, there is a high chance your business will need financial help. Part of your preparation for a tough economic time involves securing the financing even before you need it. You are more likely to be approved for a cheaper business line of credit when your business is still posting excellent performance and remarkable profits. It is usually more challenging to qualify for a loan when you apply in the middle of a crippling recession.
4. Don't Cut Back on Marketing and Sales
It’s not uncommon for business owners to cut or eliminate their marketing budgets or at the slightest sign of troubling economic times. But this is a big mistake. Usually, during such tough times, marketing budgets become the first target for cuts as businesses look for easy ways to reduce expenditures and manage cash flows. But cutting marketing spending may mean fewer sales and less revenue, worsening your financial challenges.
To survive a recession, you need to get your sales and marketing team operating at peak efficiency. This is why it is advisable to increase your marketing spending during this tough economic period. Studies show companies that increased their marketing budgets during a recession realized a 4.3% increase in profits compared to those that cut spending. Growth marketing strategies can position your brand at the forefront of your existing customers while helping your business attract new prospects.
5. Diversify Your Offerings
Each recession presents new opportunities which you can maximize to increase sales. Hunt for new opportunities to expand or diversify your product or service offerings without increasing business expenses. Offering various products and services creates multiple revenue streams, which can stabilize your cash flows. Examine your current products and service offerings and consider diversifying them, so they appeal to a different demographic. You should also explore new markets and keep track of what your competition is doing.
6. Consider Refinancing Your Loans
In difficult times, paying off debts can quickly deplete your cash reserves and expose your business to further financial risks. When preparing for a recession, assess your debt position and consider refinancing some of your credit lines. You should also review your debts and their current interest rates to make the best repayment decisions. Additionally, request a temporary freeze of your principal to pay interest only or refinance your loan at cheaper rates. You can also extend your payment terms to preserve cash and ensure a healthy cash flow.
7. Maximize Government Incentives
During economic meltdowns, several government-backed incentives and disaster assistance programs are designed for small business administration (SBA). In case of a recession, the government will likely offer targeted, low-interest disaster recovery loans to small businesses impacted by the situation. Maximizing such incentives can be a great way to keep your business afloat during this recession.
Most small business owners are afraid of a recession and for a good reason. Recessions impact businesses significantly, leading to a decline in revenues, lost customers, dwindling profits, and mounting debt burdens. However, recessions are expected parts of the economy that will happen eventually, whether in the near term or the long term. It is crucial, therefore, to face such economic downturns calmly and strategize on the best effective ways to future-proof your business.
One of the best ways to survive a recession is to be prepared for it beforehand. If you need help preparing for a recession, the marketing experts at Viral Solutions are ready to assist. Contact us today to schedule a free consultation.