Many small business owners are concerned that a recession is on the way. While there are plenty who disagree, a 2019 CNBC/SurveyMonkey survey found that 53 percent of owners expect a recession within the next year.1 If you are among those concerned, here are some things you can do to help prepare yourself and your company.

1. Establish an emergency fund

The most important thing you can do to prepare for a recession is have money in the bank. More specifically, you should have money that stays in the bank until you absolutely need it. Set up a business savings account and use it as a cash reserve for emergencies. A recession can be considered an emergency situation. Having this extra money can help you get through when times get tough.

Try to determine a set amount that you can pay into your savings account each week or month, and stick to it to help your cash reserve grow. When cash flow and revenue are in better shape, you can add more than your set amount to help it grow even more quickly.

2. Join with other businesses to save money through strategic alliances

You may be able to save some money if you ally yourselves with the right businesses. Find companies that offer something you need and that might be able to benefit from your products/services.

Kyra Sheahan at Chron.com writes, "Companies that have high overhead, but wish to save money, should consider developing strategic alliances with other businesses. A strategic alliance is a partnership where one company provides goods or services to the other company, and the other company gives something back in return. Instead of exchanging money, the strategic alliance partners exchange resources. Examples of resources include access to employee expertise, technology, marketing systems or transportation. By sharing and exchanging resources, the companies save money that otherwise may have been used to pay for these goods or services."2

The money you can save from such an alliance may be able to help even more during a recession, and the money you save during better financial times can be added to your savings.

3. Look for expenses you can reduce or eliminate

Perform an evaluation of all of the expenses your business pays on a regular basis, and identify those that can be eliminated altogether. Are you paying for software subscriptions that you no longer need? A cable TV subscription for the breakroom? Any B2B service that you're not taking significant advantage of should be on the table for elimination. What you pay for other services may be able to be reduced if you find a competitor with better rates or negotiate a better price with the provider. Companies don't like losing reliable business clients, so you might be surprised by how many are willing to give you a better rate if you seek it out.

4. Ramp up your sales efforts

If you are concerned about a looming recession, this is a good time to call for all-hands-on-deck in the sales department. Make sure your team, including you, is focused as much as possible on bringing in new customers/clients. Even if you have to offer shorter contracts or adjust your sales pitch or offer, you need to bring in all the new business you can. Have meetings with sales staff on a regular basis and hold everyone accountable for their efforts. Check in frequently on their progress in landing new clients.

5. Look for new revenue streams

If your revenue is coming from only one or a few places, it may be time to explore new ideas. As the saying goes, you shouldn't place all your eggs in one basket. If you're worried about a recession reducing revenues from your main source of income, investigate other ways to bring in money that are compatible with what you’re already doing and don’t require a large investment.   

Jeff Pruitt at Inc. writes, "Map out the entire path of what it would take to launch this entity, service line or product, from the initial market research, to testing and validating the concept, to actually building it and then through to marketing, selling and fulfilling on it. Will your current infrastructure allow for this or will you need to pull in outside expertise? Also consider, the size of your organization will factor into how long it will take to introduce something new. Often it will mean some adaptation will have to occur, and new processes developed and implemented."3

6. Optimize your cash flow management

If you find yourself in a recession, it's vital that your cash flow management is on point. Get your invoices out quickly, and stay on top of accounts receivable. Send out payment reminders. Ensure your inventory is optimized. Remember, even if you're profitable on paper, a kink in the cash flow hose can cause major problems. If this happens when times are already tough, it could be catastrophic. Consider applying for a business line of credit4 now, while your business is in good shape, so it will be available to help you deal with cash flow challenges if the economy worsens.

Preparing for a recession will put your company in a better position to deal with whatever the future holds, either good or bad.  

 

1. https://www.cnbc.com/2019/02/11/majority-of-small-business-owners-think-a-recession-is-coming-survey.html

2.  https://smallbusiness.chron.com/money-saving-strategies-business-1958.html

3. https://www.inc.com/jeff-pruitt/how-to-build-a-new-revenue-stream-without-killing-your-existing-business.html

4. Subject to credit approval. Terms and conditions apply. See a banker for details.

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC