Small business owners are forever being faced with new challenges that come with running a successful business. When things are going great and sales are flying off your order sheet, it’s easy to overlook any looming problems just around the corner. One of these is the dreaded word, ‘recession’! While it’s a normal cycle of business and economics, it’s likely you’ll only have a small budget to fall back on. This especially affects the self-employed, freelancers and solopreneurs when personal and business finances are intertwined. So you can stay ahead of the game, I’ve compiled a list of ways to recession-proof your small businesses to help you diversify and adapt but most of all help your business survive the cost of living crisis.
Although it is currently not confirmed that the UK is in a recession, it definitely pays to start preparing now so you avoid any potential problems.
1. What Does Recession Mean?
The British Chamber of Commerce is forecasting a recession in the UK, suggesting that the economy is already in recession. What exactly does the term ‘recession’ mean?
A recession is when the UK faces two quarters of GDP decline in a row. GDP (Gross Domestic Product), in a nutshell, is the standard measure used to assess a country’s economic size and growth rate. Recessions become more likely when there are high rates of inflation. The UK is currently experiencing inflation rates of 9.9% – in other words, if a loaf of bread cost £1 a year ago it would now cost nearly 10p more. Although the war between Russia and Ukraine causing is supply chain issues, fuel increases, food prices going up, second-hand car prices spiking and higher interest rates, people are slowing down their spending and only buying what they need. Meaning businesses are being hit with declining sales and increasing costs, fuelling the prospect of a recession.
The Bank of England has warned of increasing inflation rates, with some predicting it could be as much as 20%. During a recession, businesses and consumers spend less money. That means some businesses go bust or others look to save money by cutting jobs for example. Whatever the outcome for businesses, the government will also be generating less money through taxes during a recession.
2. How to Recession Proof Your Small Business
If you’ve started to see costs rising in your small business or buyers being more cautious about their spending, then you’re no doubt starting to experience the impact of the predicted recession. Here are some of the ways you can protect yourself, your business and the amount you have to pay yourself:
2.1 Get your numbers in order
It goes without saying that cash flow is a top concern for self-employed business owners, particularly during a recession. Therefore, I cannot emphasise enough how vital it is to get a tight grip on your numbers to survive the cost of living crisis. Tracking your income and expenses along with creating a cashflow forecast is extremely useful to start off crunching the numbers. Plus, it will help you review where any warning signs might come into play.
If they’re not already in order, it’s also a good business sense to get your invoices paid, and ensure you pay your outstanding invoices too. That way, you are more likely to have a realistic balance when spending becomes tighter.
In addition, evaluate your tax bill so you have the money to pay for it. You may have to fall back on your emergency fund if none of this can be achieved.
2.2 Review your products/services
Undertaking an audit of your sales can be two-fold. Firstly, prioritising profit over growth is considered sound advice to prepare for an economic crisis. This is where you assess the areas where your business is creating the most lucrative profit margins, and capitalise on these products/services.
Secondly, I’d also recommend starting to think outside the box whereby you focus on diversifying. For example, adding another service to your skillset or looking to sell your products elsewhere. In doing this, you should always have your target market in sight. Consider their needs and how you can meet them to offer something they want.
2.3 Invest time into clients and suppliers
Loyalty and value are the two things that a business will thrive from and survive the cost of living crisis. As a result, maintaining the connections you have with your clients and suppliers is a survival necessity. During an economic downturn, finding new customers will be tricky, and cost you money. Consequently, you want to focus on strengthening and nurturing your current client base. Despite more of an uphill struggle to find new customers, they are not be ignored either! Look to selling online, find other outlets or even to other countries to broaden your target market.
Similarly, talking to partners and suppliers can help to recession proof your small business. After all, the chances are they’ll be in the same situation as you if a recession hits. Remember that making connections and building upon them is key.
2.4 Get ready before it happens
There is a range of strategies you can put in place so you’re prepared for the worst-case scenario. For starters, procuring credit and capital once a recession hits will be much more difficult. Therefore, if you need to, it’s a good idea to apply for any loans or other lines of credit beforehand rather than trying to secure funds later.
2.5 Always keep looking for alternatives
If there’s one thing that small business owners are good at, it’s adding new skills to their repertoire. So, when a recession hits, we’ll have to think on our feet a lot quicker in order to survive financial times ahead! Consequently, start looking to diversify and find alternatives to up your business game.
Now is not the time to cut your marketing budget. Rather, try and find new innovative ways to get your brand out there. While it’s not especially necessary to spend on a fully-blown campaign, testing other social media platforms, email networking or upping your blogging content, are all valuable alternatives. Whichever method(s) you turn to, it’s vital you track your progress to see which ones hit your targets and work as the best use of your time.
Other ideas for creating extra revenue can include branching out to affiliate marketing, organising a membership platform, adding sponsored posts on your website, or even consulting. Whatever you choose, ensure you adapt your business accordingly and remember not to keep all your eggs in one basket.
2.6 Cut Costs Where Possible
Tightening your budget should be top of the list to boost financial confidence. Examine your overhead costs as they can add up very quickly. Look to make any changes from easy to drastic cuts to generate savings. For example, do you really need all the business subscriptions you’ve signed up for? Likewise, while you might need to invest in new equipment, it could prove it’s a costly expenditure. Therefore, you’ll need to hold off for the time being and look for alternatives in order to survive the cost of living crisis.
2.7 Raise Your Prices
If the costs of being in business are rising, then the cost of your product/service needs to increase as well. Otherwise, you are simply taking a pay cut with higher costs eating away at your profits and what’s left to pay yourself. You’ll no doubt have noticed increasing costs in the supermarkets and this is how retailers are covering the additional costs of buying the products they sell. It works no differently for small business owners so don’t be embarrassed about raising your prices. It goes without saying that you should be mindful of what your competitors are doing because you don’t want to price yourself out of the market entirely.
While it’s easy to feel over-challenged and feel like you’re being financially squeezed in these turbulent times. The best advice is to not ignore impending payments, keep on top of your paperwork and use the advice above. Making the right decisions at this time will help you weather the storm and recession proof your small business.
