The world entered the year 2023 with much pessimism related to a slowing down of growth. Almost all forecasts suggest that a global recession is underway. With high interest rates, low spending, and high unemployment rates, it’s wise for businesses, especially small to medium enterprises, to brace for the worst.

There is hope in the cooling of US inflation, plunging of European gas prices, and reopening of China’s economy. While these are unable to completely eliminate our worries, they do signify a potential soft landing rather than a hard crash. This gives you enough time for small business recession planning.

How to to mitigate the impact of a recession

A financial crisis is challenging for any organisation, but small businesses are especially vulnerable in such a situation. They lack access to the same resources as larger companies, plus they need to be creative in order to survive.

Here are small business recession strategies to prepare for a downturn:

• Understanding the impact of a recession on small businesses and not underestimating it
• Creating a financial cushion instead of being complacent with your current revenue
• Managing your cash better by reducing expenses and maximising your capital
• Diversifying revenue streams rather than limit your company to what you’re used to
• Focusing on customer retention since keeping customers is better than acquiring new ones
• Investing in marketing and advertising to get your brand out to your target audience

Understanding the Impact

SMEs tend to suffer the most during an economic recession. Inadequate preparedness, reduced spending power, and budget constraints all make it difficult for them to survive. By knowing how a downturn may affect your company, you start making better decisions when preparing for a recession.

How past recessions affected small businesses

The Great Recession in 2008 had a significant impact on SMEs, as many were forced to halt expansion, slash spending, or lay off workers. A Blue Vine survey reveals that almost 2 million small businesses went under during the first two years of that financial crisis.

During that period, the number of startups reduced drastically from 715,000 in 2006 to 560,000 in 2010. Commercial loans by large banks to SMEs were near non-existent from 2008 to 2011 as well. Industries dependent on external financing were likely hit the hardest by the downturn.

Creating a Financial Cushion

During an economic downturn, some of your clients will put off payments longer than usual because they have their own cash constraints. By reducing your debts and building up your savings, you no longer have to wait for payments to come in to pay off your own dues for rent, supplies, and more.

How to build up cash reserves

Begin with financial planning for small businesses, which involves evaluating your current status, establishing your objectives, and deciding your next steps. It’s recommended that you go paperless with your transactions and documentation where possible too. Sometimes, it’s a good idea to rent equipment rather than buy as well.

Remember to ask your long-time suppliers and vendors for any discounts or promotions. To reduce debt, communicate with your lenders about refinancing. If you have multiple loans, look into loan consolidation programs which allow you to group them together for a single monthly payment.

Diversifying Revenue Streams

A universal experience for small businesses during a financial crisis is reduced sales. When your customers experience cash constraints, they’re likely to spend their money where there’s free shipping and the like. This is why you mustn’t rely on a fixed income stream and consider other opportunities for revenue.

How to diversify your revenue streams

When the pandemic hit, many entrepreneurs realised that the best way to achieve a recession-proof small business is by taking physical sales to the web. You don’t have to make your sales fully virtual but make your products available online so you have two income streams.

Think about adding a subscription service if you already have a loyal client base. Offer exclusive promotions or goods for the customers who sign up or recommend your website. Some social networks like Facebook enable you to set up a shop on your page too.

Managing Your Cash Flow

A common effect of an economic recession is a decline in cash flow. Unlike bigger corporations, you have limited access to monetary resources, making small business cash flow management crucial. Learn to keep an eye on your petty cash, cash flow, and profit which make up the lifeblood of a business.

How to control your costs

Setting a budget is an important first step since you use it to determine your monthly expenses and income. Creating and using a cash flow statement also helps you know whether you have a negative or positive cash flow. Finding ways to delay your payments while speeding up others’ payments are also helpful.

On the topic of cost-cutting for small businesses, consider hiring a VA to save on staffing costs. By hiring online bookkeepers, for instance, you’re spared from finding them office space and equipment. They tend to pay for their own tools so you cut the costs for software as well.

Focusing on Customer Retention

It’s nice to get business from seemingly nothing but remember to nurture the relationships with your existing clients too. By building loyalty with your customers, they’ll refer their friends and relatives to you in the future. They’re also likely to get your other products and services since they’re familiar with you.

How to improve customer retention

Though it may sound surprising, one of the best customer retention strategies for small businesses is embracing complaints. Companies are often judged on how they handle complaints instead of the original problem itself. Hence, make it easy for clients to give their feedback and voice out their concerns.

Next, promote after sales products and services. We at Remote Workmate, for example, let you exchange your online assistant for another candidate when they’re not a good fit. You may also recommend items that are related to their initial purchase for their next transaction.

Investing in Marketing

Reduced income and access to financing means you have less cash available for keeping your company running. Typically, marketing is one of the first to be removed since many view it as a luxury. The truth is, without marketing and advertising you’re unable to attract new clients to offset loss.

How to market and advertise

Start with knowing who your buyers are and developing a niche. If you have enough money to spare, you might capitalise on long-term strategies like search engine optimisation. When your time, budget, and resources are limited, opt for short-term tactics like paid ads.

There are plenty of free tools on the internet so do your homework. Your website needs to be professionally made, however, to leave a good impression on all of your visitors. Try remarketing strategies that target customers who abandoned their shopping carts or stopped replying to your chats too.

Where to go from here

To recap the small business recession tips we’ve shared above, begin by understanding how a recession will affect your small business then create a financial cushion. Follow that with diversifying your revenue streams and managing your cash flow better. Also, focus on keeping your existing customers and invest in marketing.

Don’t wait for an economic downturn to occur just because you’re seeing improvements in inflation rates and gas prices. Take action now to prepare for the potential impact of a recession! We at Remote Workmate are ready to help with small business financial planning through offshore staffing.

We’ve mentioned before how hiring remote assistants is more cost-effective since they don’t need office space or equipment. To add to that, they offer expertise that your current team might not possess, like when you hire a property manager for your HOA.

Want to find a virtual assistant for your SME? Start your staffing journey by clicking the button below.