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Recession-Proofing Your Small Business – Is now the time?

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While it is still unclear whether we will encounter a recession in the coming year, more than 90 percent of today’s small business owners are worried about the possibility of a recession, according to a recent survey by Goldman Sachs. 

A recession is considered a significant decline in economic activity that lasts for months—or even years. Financial experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time. 

Recessions are not only considered an unavoidable part of business—but also part of the regular cycle of expansion that occurs in a nation’s economy. And while recessions are not uncommon, they can definitely be very unsettling and worrisome for small businesses. The key to getting through a recession is for business owners to understand how a recession works and to successfully prepare their organizations to survive—and even thrive. 

What tends to be confusing is that every business is affected in different ways during a recession. This difference is due to the type of product or service that an organization sells and how organizations effectively meet the needs of customers during a recession.  In fact, industries that provide recession-resistant products and services are called recession-proof or defensive businesses.

Regardless of what the future holds, now is a very good time to prepare your business for the road ahead. Below are several strategies to help every business owner successfully recession-proof their organization:

Stay on Top of Workforce Needs: To ensure that employee skills align with what your business will need during a recession, keep abreast of your employee numbers and their exact skill sets. Always be ready to make adjustments so that employees work efficiently and are organized in a way that maximizes their potential within the organization.

Do Not Lose Sight of Your Budget: Operating within your budget makes very good business sense, so that your business is in the best possible position should a recession hit. In fact, following a budget or operating plan is a best practice at all times—even when a recession is not looming.

Create an Emergency Fund: Maintaining a cash cushion is a good business investment — especially for smaller companies that can’t easily tap debt markets. Try to create an emergency cash fund that will cover your business for up to six months of essential costs, such as payroll, inventory, and utilities. 

Get Creative in Reducing Company Spending: Cutting back on business operating expenses can be a challenging task, but a very important one. When looking for ways to cut back, consider beginning with the biggest costs. Try to make small tweaks that result in big expense reductions, such as automating manual tasks and moving to a combination of full-time employees, part-time workers, and independent contractors.

Develop a Cash Flow Plan: While running out of cash is a huge fear for every business owner, it is especially concerning during a recession. Consequently, it is vital to get a grasp on your current cash balances and cash needs. Consider developing a cash flow forecast for the next few quarters to guide management and serve as a warning tool that alerts them to any discrepancies.

Invest in Employees: Becauseit will be crucial to rely on your employees to help your business stay strong and flexible during a recession, it is essential to help employees build skills. In addition, investing in employees will help them feel more connected to the business and be way more willing to go the extra mile when they are called on to do so.

Downsize Inventory: There is no question that inventory costs money and requires a great deal of monitoring. During a recession, when inventory turnover tends to be extremely slow, inventory can become even more costly. However, it is essential to maintain a balance between converting inventory to cash and retaining the ability to fulfill orders. Think about downsizing the less profitable and more easily replaced inventory to increase cash flow, while also stocking up on your most popular items. 

There is no question that the key to making it through a recession is to start planning today and find ways to leverage the current economic difficulties to help your organization grow into a lean, recession-proof business. Remember that even with the possibility of a recession on the horizon, every business owner can take steps to effectively prepare and ensure your business survives whatever may lie ahead.

Get started by forming your business online.  Then we can work with you to establish and build your business credit.  We’re here to answer your questions and guide your business to success. Form your free LLC today!

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