Help your small business through the economic recession in 4 steps
With an economic recession the backdrop to Canada’s post-lockdown recovery, some small business owners are lying awake at night wondering how to create a recession-proof business. Here are four tangible things you can do now.
What should you consider?
As people curb their non-essential “discretionary” spending, those businesses that sell the essentials (e.g. groceries, medicine) naturally tend to fare better than those selling luxuries that people can live without.
But even if your business relies on a slice of people’s discretionary “wants” budget, rather than their essential “needs” budget, there are still plenty things you can do to reduce the impact of the economic recession on your business.
1. Get your finances in order
If you’ve always been a bit lax when it comes to the financial side of your business, then now is the time to get into good habits.
If you can, be flexible about payment, as everyone is in the same predicament. For example, allowing clients to pay in installments is better than not getting paid at all.
Review the terms of your debts
Once that’s done, take a look at your loans and debts to see where you can save, consolidate or restructure.
If you’re paying more than 4% interest on your home loan, ask your bank for a better deal.
- Consider the merits of a business loan or line of credit.
- Talk to your accountant about your eligibility for business grants, apply to any you qualify for.
- If things are really tight, you might ask about deferring payments on your home or business loans, but keep in mind there’s a long-term cost because the interest keeps stacking up.
Resist the temptation to draw on your retirement funds, as even a small withdrawal now can have a significant long-term impact on your retirement savings.
2. Redo your budget
The next step in preparing for the economic recession is to look at both your personal and business budgets, which might be intertwined if you’re a small business owner.
When it comes to your personal finances, a 50/30/20 budget is a good starting point. So:
- 50% of your income goes towards necessities
- 30% towards wants
- 20% towards saving, investing and repaying debt
When drawing up your personal and business budgets, look for areas where you can trim expenses such as cutting back on luxuries and putting some services on hold or dropping down a tier.
Consider where it might be more efficient to outsource some business functions, as well as which tasks you might bring back in-house if you’ll have more time on your hands during the recession.
It’s not just about cutting costs and boosting income to ensure that you bring in more than you spend. It’s also about:
- Building up an emergency cash reserve as a buffer
- Planning for the future
- Investing in ways that grow your business
Related: Best budget apps for small business owners
3. Review your products and services
Remember, all your customers are also considering how they can tighten their belts, so you need to think about what you can do to ensure your products or services are as appealing as possible.
Streamline your inventory
Inventory management can be tricky at the best of times, but it’s especially important during a recession. Holding too much inventory can reduce your cash reserves without adding to sales, while too little inventory can result in lost sales.
This is where you need to look over your historical data, industry insight and economic forecasts to develop your sales forecasts and optimise your pricing strategy, perhaps including strategic discounting.
Actively look for new opportunities
Don’t simply weather out the storm to discover your competitors have emerged strong — look for strategic opportunities to:
- Expand into new areas
- Develop new products
- Target new customers in different regions
If your business depends on a slice of your customers’ “wants” budget, then undertake some market research to determine what you can do to dip into their “needs” budgets.
Look at your products and services with a critical eye
The same goes for the mix of services you provide.
Are there less profitable products or services that might be worth adapting or dropping?
If you’ve been charging on a yearly basis for your service, consider switching to a budget-friendly monthly or quarterly billing option.
Remember to be considerate of your customers’ needs and aim to be flexible where possible, especially if you’re in the services industry. You’ll rely on these customers when the economy picks up again, so try to keep them onside. You need to play the long game.
4. Use your downtime wisely
If business is slow due to the economic recession, don’t just flop down on the couch. Use some of that time to work “on” the business rather than “in” the business.
Think about those tasks you’ve been putting off, such as:
- Taking stock of your business
- Upgrading systems
- Updating processes
- Overhauling your website
Talk to other business owners in your industry to gather insight and share ideas on creative ways to weather the downturn.
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How could a recession impact your business?
An economic recession is basically when the economy starts shrinking rather than growing. Economists typically define it as two or more consecutive quarters of negative growth of a country’s gross domestic product (GDP), which is the total value of everything that a country produces.
The last Canadian recession was between 2008-2009 when unemployment hit 8.2%.
Recessions occur when there’s a significant decline in economic activity, such as businesses and consumers cutting back on spending. This hurts business, which leads to higher unemployment, which further reduces consumer confidence and spending as people have less money to spend and even those who are still working may worry about job security.
Economic recessions tend to bring lower interest rates and government-led economic stimulus packages in an attempt to kick-start the economy.
How to help minimise the impact of the economic recession
If you’ve been slack with your paperwork, now is the time to improve — especially when it comes to tracking and chasing overdue invoices to help improve your cash flow. Also give some thought to issues like cybersecurity and business continuity planning, as this will help you think through what/where to scale back.
The information contained in this blog post is provided for informational purposes only, and should not be construed as an endorsement or advice from GoDaddy on any subject matter. Seek financial advice from a professional before making any changes to your small business.