During economic recessions, some of the most affected businesses are the small ones. The COVID-19 pandemic is affecting many small business owners and is costing millions of dollars in lost revenue. Arrivals at Canadian airports went down 99% from last year, for example, affecting all businesses connected to or profiting from tourism.
In this guide, we’ll give small business owners the steps on how to prepare for a recession. They also apply to businesses that aren’t reliant on the tourism industry.
1. Manage Your Invoices
Once a recession is on the horizon, you need to talk to your clients about any unpaid invoices right away. Remember, slow payments will affect your cash flow. If you don’t have a program for collecting slow-paying receivables, make one right away.
A good collections program uses a well-written contract and a delivery acceptance letter. You also need to send invoices as soon as you can. The next step is to follow up with your clients and to do it on the regular.
If there are any disputes, you must handle them as a professional. Your business needs a good collections program even if it’s a small business. This is a great way to start preparing for a recession and future business ventures.
2. Offer Payment Terms
Small vendors often find themselves in big disadvantages compared to bigger businesses. You can’t offer payment terms to clients unless you want to drive clients away. However, some clients will take advantage of your small business and ask for credit.
This is a great way to keep inflow going, but it can harm the business if you’re not careful. Thus, you need to devise a way to know if a client is creditworthy. You can do this by running a credit report.
It’s the best way to tell if a client is likely to pay you any credits you loan them.
Go to Experian, Ansonia, or Dun & Bradstreet to check commercial credit reports. Know that businesses that do well in recession times aren’t afraid to give chances to trustworthy clients. As a note in business planning, always write a good contract.
3. Protect Your Cash Flow
In an economic recession, your cash flow must remain alive. It needs to keep flowing so that your profits don’t become negative. That also means that you need to keep the outflow going like you need to keep the inflow.
Note that during a recession, you’ll be losing cash inflow, so you need to keep the balance. Make sure that the same happens with your outflow. Cut back on expenses that are too costly when compared to your inflow.
For example, you use a paid email management service. To compensate for a lower inflow of cash, look for a free email management service instead. You can also choose to do the mail management by yourself while the recession is ongoing.
Let’s say you’ve done everything to protect your cash flow, yet the measures you used weren’t enough. In this case, you can get a CEBA loan to keep an active income. Read on here to learn more about the CEBA loan and how to prepare for a recession using it.
4. Learn How to Prepare for a Recession by Refocusing on Core Skills
As a small business owner, you likely had to add new products and services over the years. You may have had to use gimmicks to attract more customers from the competition to your business. Unless those things are what keep your business going, cut them out for now.
Bring your focus back on the core of your business. If something isn’t what the core of the business is, yet it brings you the most profit, you must refocus and readjust. At this point, it’s better to drop services and products that aren’t giving back enough profit.
5. Capitalize on Current Customers
A great way to prepare for a recession is to keep your best customers close to you. It can be riskier to lose them and make the effort to win them back after the recession. Plus, there are many benefits to having a loyal customer base.
The key to keeping and creating a loyal customer base is customer service. To be specific, you must have excellent customer service. You need to keep them happy and satisfied all the time.
This means hiring and managing employees with great patience and communication skills. It also means that you may have to adapt the ideal that the customer is always right. Take care of your customers, and you’re taking good care of your business.
6. Convert Competition’s Customers
These tough times are also the time to expand your customer base. As a business owner, there are other businesses you’re competing against. During a recession, they’ll also likely lose customers.
Don’t be afraid to swoop in and gather those customers to your business instead. It can be as simple as providing better customer service to them. You can also do a little more and provide items that the other businesses aren’t providing.
For example, the best measure to keep COVID-19 at bay is regular hand-washing and wearing masks. The local government is likely to encourage businesses to provide rubbing alcohol. You can take that a step further by providing one-use face masks to customers who enter your store.
Note that it’s better to research your competition and know what they’re not offering. Also, as your client base becomes more diverse, this is the time to diversify your revenue as well. If you can make new revenue through online selling, go for it.
7. Keep Your Marketing Campaigns Rolling
Cutting back on marketing may seem like a smart move when there’s a recession going on. However, if you think about it, you’re doing the opposite thing. During a recession, this is what a small business needs the most.
Remember, consumers, will look for any other business to buy from. If it’s not yours, it can be your competition’s store they go to. Plus, you need to consider that other businesses may stop their marketing campaigns.
Give your customers and new consumers the power to find your business. Keep your marketing campaigns going. If you can, step it up and invest in better marketing efforts.
8. Keep Your Small Business Ready for Anything
The government’s lockdown or community quarantine isn’t a sign for you to shut down. It’s only a warning for you to start making only smart decisions from here. Remember, you can’t risk anything now that a recession is on the horizon.
That’s our guide for small businesses and how to prepare for a recession.
But it doesn’t end here! We offer tons of useful tips and tricks and we encourage you to continue perusing through our content. If you want to learn more about what you can do to keep your small business afloat, read our other guides now!