Small businesses should be lauded after navigating the COVID-19 pandemic, but the market has only presented entrepreneurs with more challenges. Regardless of whether the U.S. meets official recession criteria, the current market environment has, and will continue to, impact American businesses far and wide. In preparation for the months ahead, we’ve identified three Do’s and Don’ts for small businesses to survive a recession.
- DO Embrace Financing Alternatives – Anticipating financial challenges is an immediate first step to safeguard a business. While on-hand forms of capital like credit cards and merchant cash advance may be enticing in the wake of financial difficulties, take advantage of being prepared and seek out other financing options. While these financial alternatives may require a slightly longer process to obtain capital, securing low-cost funding before encountering hardship will ensure more options, saved time, lower costs, and reduced stress. For example, Small Business Administration (SBA) 7(a) loans are often overlooked by business owners. SBA loans offer long loan terms, some of the lowest interest rates, and can be used for a wide variety of business expenses including payroll, rent, utilities, marketing, membership programs, expos and more. Finding and applying for a capital source like an SBA 7(a) loan ahead of your financial need promotes the fortification of a company’s balance sheet before it encounters challenges.
- DO Reduce Tax Liabilities – Alongside finding new, affordable sources of capital, allocate time to research and review current tax incentives. Following the COVID-19 pandemic, new state, local, and federal tax incentives emerged. For many companies, applying for these incentives can uncover considerable “hidden” savings based on their existing operations. For instance, companies that retained employees during the pandemic may be eligible for the Employee Retention Tax Credit (ERTC). Thanks to recent legislation, ERTC can be applied retroactively to reduce future tax obligations. Beyond ERTC, local and state governments have enacted programs to reward companies that keep employees in-state throughout the increasing popularity of remote work. Staying current with accounting can help identify these tax savings to create a foundation to better plan future obligations to operate most efficiently in the months ahead.
- DO Continue to Invest in Growth – While examining expenses is a traditional method of recession preparation, continuing to create opportunities for growth is equally important. While a recession will not impact all companies equally, challenge breeds opportunity. Companies may make alterations to their existing operations to create room for growth. Service-based businesses may consider expanding their geographic coverage to be open to new projects and form new business relationships. Product-based businesses may present new product lines that extend their current offerings to reach a broader audience. Product and service businesses may also contemplate creating new allies in their market as other companies also seek to diversify their revenue sources. Growth may also come in the form of investing in new tools to make repetitive processes more efficient or implementing new programs to increase customer engagement. Continuing to grow and augment business operations will aid in making rapid future adjustments, should the need arise.
- DON’T Ignore Your Balance Sheet Health and Cost Structure – Wading through financials may be time consuming, but ignoring the wellbeing of a balance sheet is a mistake. Regular review of liabilities, examination of costs, and identifying areas for improvement are critical during economic uncertainty. Determine the required costs and explore whether alternative options exist. Get competitive quotes for regular, crucial expenses like insurance. With new insurtech tools, it is easy to customize exact coverage and receive multiple competitive offers in minutes. Beyond expenses, large customers may be interested in altering payment terms. Offering a small discount for faster payment may benefit your customers’ own financial health while bolstering your cash on-hand. Exploring these options before they are needed provides yet another resource to small businesses. Knowing the company’s financial health aids in better decision making.
- DON’T Be Surprised by Revenue Slowdown – Alongside balance sheet analysis, prepare for revenue slowdown and be ready with alternative solutions. Being startled by this change is easily avoidable. Anticipating slower revenue can help manage expenses, like altered purchasing decisions for inputs and supplies. Whether shifting closer to a just-in-time model, ordering in smaller batches, or bulk ordering in larger quantities to secure discounts, consider how these behaviors may shift if revenue decreases. In addition to the quantity and frequency of purchases, hold early conversations with suppliers and vendors to discuss payment terms. This could be in the form of longer payment periods or smaller installation payments. While different payment terms may not be necessary now, having early conversations will help determine future flexibility.
- DON’T Trim Marketing Initiatives – Instead of cutting back on marketing expenses, savvy owners strategically increase their marketing spend during market contraction. While competitors cut spending and cease regular communications with their customers, seize the opportunity to capture customers’ attention. To be strategic in your marketing decisions, make use of analytics and tracking mechanisms for advertising or email engagement. By integrating data, all marketing decisions become informed based on historic activity and behavior. Staying at the forefront of consumers’ minds is crucial during a recession as consumers make longer, more thoughtful purchasing decisions. By continuing to invest in marketing and customer engagement, businesses can maintain a steady market presence and rapidly increase market share as the economy improves.
The Bottom Line
The best business preparation results from ideating alternatives and options. Creating these pre-identified solutions can help any business weather economic challenges. With most aspects of business, being agile and adaptable is critical to success.
David Cody, Co-CEO of America’s small business marketplace, NEWITY, has focused on helping companies scale for the past 30 years. Previously the founder of Galway Advisors, Dave has spent significant time helping businesses commercialize their organizations. On a mission to create access to affordable small business loans and trusted business service providers, Dave founded NEWITY.\
Recession stock image by Immersion Imagery/Shutterstock