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6 Ways to Prepare a Business for a Recession

How to Prepare Your Business for a Recession

In the U.S., a modern economic recession occurs on average every 6 years and lasts an average of 10 months according to NBER. This means it is likely a business owner who plans on running a business longer than 5 years will experience at least one recession. While there are some businesses that are nearly recession-proof, most businesses will need to find a way to weather the storm.

When a recession hits, the last thing you want is to be blindsided. Therefore, it’s important to set your business up for success by taking cautionary measures in case of an economic crisis. Forming a reliable backup strategy can keep your business from failing when the economy struggles. Although there are ways to increase sales during a recession, it is better to be prepared for the worst. In this article, you’ll learn ways you can prepare your business for a potential recession.

1. Communicate with Your Team

As a business owner, you should know that your team is your rock. Your business can only be as successful as its crew, and that statement stands even when facing unexpected setbacks. So make sure you sit down with your team and discuss backup plans for what to do when the economy struggles.

Identify signs that a recession is approaching using resources such as profit margins and quarterly sales reports. Look for patterns in your business’s long-term performance and learn what your industry’s ups and downs look like. Then, discuss these trends with your team to ensure you can prevent disaster later on.


2. Know Your Industry

Although a recession will likely affect most aspects of business, some businesses may suffer more than others. Fortunately, it’s possible to predict which products will thrive in a recession and which ones will not. For example, during a recession, products such as comfort food, pet care, hygiene items, and automotive services will continue to grow. On the other hand, other industries, such as hospitality, travel, retail, and real estate, will be hit harder.

You can use this knowledge to plan ahead by strategically stocking what will continue to be in high demand. On that same note, refer to your company’s sales history before making any decisions. Your business may possess other qualities (such as convenience or subscription-based services) that make it an outlying case.

3. Secure a Line of Credit

A line of credit is a flexible loan from a financial institution and offers unique advantages over a standard business loan. When you take out a loan, you receive a one-time payment which you’re then obligated to pay back in full (plus interest). Conversely, a line of credit provides a limited allotment of credit that you have available to you at all times. All you have to do is make consistent payments on what you spend.

Securing a line of credit involves using an asset as collateral in case you are unable to pay back what you owe the bank. It’s advantageous to do this because unsecured lines of credit often mean higher interest rates and a lower chance of getting approved. However, this can become quite a headache for you and your business, especially during a recession.


4. Start Saving Cash

During a recession, consumers are limiting spending money. Less cash flow for your business can get problematic fast. Without enough cash flow, your business will struggle to pay vendors, employees, and other necessities. To prevent this, it’s a good idea to start saving money for your business and setting it aside. When economic hardship sets in, you can rely on those savings to help you get by.

The cash that you save will allow you to pay employees, bills, and yourself while the recession storm rages. Cash will also help you went it comes to negotiating better prices from vendors. You may be able to approach one of your vendors and request a discount for bulk orders. Since most businesses feel the effects of a recession, they will benefit from a purchase that is paid in full. During a recession, cash is king.

5. Reward Loyal Customers

It’s easy to overlook the value of repeat customers, but it would do your business a major disservice. When a recession hits, fewer consumers are looking to get involved with a new company. Returning customers will be the backbone of your business during economic difficulties, and you should seek to reward their loyalty to establish an even better, more reliable relationship.

Make sure to stay in constant communication with your most supportive customers through resources like social media. Ask for customers’ feedback by offering rewarded surveys or launch a rewards program where they can earn points at checkout. It will incentivize those customers to keep coming back, thus creating an anchor of support for your business.

6. Diversify Revenue Streams

Sometimes the best thing you can do is get creative in the face of adversity. Running a business requires adaptability to a constantly fluctuating market, which often involves developing new and enticing ways to engage customers. Here are some ways you can expand your sources of revenue:

  • Announce a New Product
  • Utilize Online Services
  • Partner with Other Businesses
  • Introduce Exclusive Services
  • Make Smart Investments
  • Upgrade Existing Customers

Introducing a new product during a recession may sound risky at first, but it’s a strategy that has paid off for other successful companies in the past. During a recession, consumers are looking for new ways to live their lives and are making changes wherever possible to adapt. This creates an opportunity for you to swoop in, capture their attention while your competitors are down, and pitch your company’s next greatest idea.

Resilience is Key

Although it may sometimes feel like it, a recession doesn’t have to mean the end of your small business. There are ways you can take charge and navigate an economic crisis without compromising sales or success. Don’t let the recession bully you into tucking your tail between your legs – instead, use that low point in the economy as a launchpad into your next successful venture.

Remember that patience goes a long way in business. Sometimes it’s just a matter of waiting and doing the best you can until things clear up. That being said, a little prep never hurts anyone. The more openly and actively you communicate with your team and your customers, the more likely your business will survive the next recession and maybe even prosper in the aftermath.

Ari Bratsis
Team Writer: Ari is a writer, blogger and small business owner based in Washington state.

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Finance · Find Your Way · Grow Your Business · Leading Your Team · Sales · Your Mindset

Team Writer: Ari is a writer, blogger and small business owner based in Washington state.

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