Our economy has been in a growth mode for the past 11 years with the bull markets far outperforming the bear markets. For many of us it easy to forget the cyclical nature of the economy and the great recession that hit its peak ten years ago. Any economist will tell you that a recession is inevitable and its impact on small business owners is often the hardest. So, how can you, as a small business owner, prepare yourself and your company to stay above water in the event of a recession?
Have a Cash Reserve:
- Much like an individual, it is imperative for small business owners to build up a cash reserve to lean on in rocky economic times. In a recession, it is almost certain that sales will dip and couples will be looking for discounts as they feel the pitch in their own wallets. Therefore, small businesses have to acquire backup cash to take care of expenses and continue to pay employees. As the owner of a company, it’s a good idea to target at least three to six months of reserves on hand to give the company some breathing room.
Expand your Customer Base
- This step means doing what you can to attract new customers through marketing, creating partnerships, and potentially re-defining your target audience. This does not mean you need to immediately discount your services, offer incentives or eliminate offerings, which is often the knee-jerk reaction that most small business owners make during a recession.
Focus on Core Competencies
- Business consultants have spoken and written numerous articles during the great recession on diversification as a strategy for small business success. However, all too often small business owners simplify the concept of “diversification” to “different”.Just adding other services can be a waste of time and money. Worse, it can damage your core business by taking your time and money away from what you do best and/or damaging your brand and reputation. Drop the extras and focus on what you do best that is most profitable to recession-proof your business.
Ramp up your Marketing Efforts:
- During a recession, many small businesses make the mistake of cutting their marketing budget to the bone or even eliminating it entirely. This is the most critical error that a business owner can make as lean times are exactly the times your small business most needs marketing. Consumers need help with finding your services. So don’t quit marketing, in fact, step up your marketing efforts.
In summary, being a successful business owner takes planning, review, discipline, and foresight to achieve your financial goals. As a commercial lender and business banker, business that I have financed and grew to a successful brand were only able to achieve this by looking forward and being prepared for either the bull or the bear to dominate the market.