Many economists predict a looming recession in the coming year. A recession is when the economy decreases for several consecutive months, including constriction of gross domestic product, high unemployment rates, and lowered consumer spending. Many factors influence these economic indicators. But of significant concern, this past summer was inflation driving up the prices of raw materials, increased shipping costs, and peaking gas prices.
If you are a small business, here are five recommended steps you can take now so that you are prepared to weather the storm.
1. Prepare for Lower Sales
A simple economic fact is that when consumers cut back on spending during a recession, it will have a negative impact on your sales. But your business will still be responsible for monthly overhead expenses, including payroll, utilities, office rent, etc. To sustain your business, it is critical for you to have strong cash reserves readily available to keep your doors open. You may need to direct more of your profits now, while converting them to cash reserves and holding off on large capital investments.
Related Post: Small Business Risk Management Tips for When Inflation Rises
2. Lower Overhead Costs
Another way to improve your cash reserves is to address total overhead costs. Review your operating costs and look for opportunities to cut operating costs. You may need to make some tough decisions about what is really needed for your business and what is good to have but you could do without. Be careful here not to change anything that will impact your customer service and reputation.
3. Hone Your Processes
Empower everyone in the business to take a deep look at your processes and identify ways to streamline them. Reward employees who provide realized savings. Ensure that any changes implemented will not have a negative impact on business growth, customer service, or employee satisfaction.
4. Consider Software Applications
When the pandemic hit, businesses were successful in implementing various software applications to “stay open” without having to be in a physical office. There are many software applications available today that can help you automate processes and lower expenses. You can do the research yourself to find available solutions or consider going to a software consultant that may save you time and get better results.
5. Freeze Compensation
Though it can be painful, especially in unstable economic times, you may need to put a freeze on compensation, bonuses, and raises. You must be transparent with affected employees, so they fully understand the need for the freeze. Make sure they know the freeze will be temporary and will only be in effect until the economy moves out of the recession. Consider other benefits you can offer employees in lieu of compensation, like an hour or two of additional free time per week.
Related Post: 9 Practical Cash Flow Tips for Small Businesses
We Can Help Your Privately Owned Business Plan for Future
Making plans now for a recession by following these suggestions can help ensure your business meets its bottom line and remains strong. The Whitlock Co. offers services tailored to your privately owned business. Contact us today to see how we can help.