During times when the economy is on the upswing —like right now—it is easy to forget the cyclical nature of markets. They are almost as certain as gravity, because just like the invisible force, what goes up eventually has to come down. Now, things are great, better than they have been for a while. However, economists are discussing the inevitability of a coming recession. It is hard to believe The Great Recession hit its peak only ten years ago, and many are still recovering from its impact on businesses and individual workers.

Small businesses, in particular, were among the hardest hit of any group. Between 2007 and 2012, 60 percent of the country’s job losses occurred at companies with fewer than 50 employees. Small businesses were also less likely to receive loans to keep the company afloat. So, how can you, as a small business owner, prepare yourself and your company to stay above water in the event of a recession? Read on for five tips to get ready for a likely economic slowdown.

Have a Cash Reserve

Much like an individual, it is imperative for small business owners to have a set of cash reserves to lean on in rocky economic times. In a recession, it is almost certain that sales will dip and banks may be less likely to give out large loan amounts. Therefore, small businesses have to acquire backup cash to take care of expenses and continue to pay employees. According to the McKinsey Institute, companies that were able to survive the last recession could finance internally through “high cash balances and a low dividend payout.” As with individuals, it is a good idea to have at least six months of reserves on hand to give the company some breathing room.

Maintain Lean Inventories

If you own a business that carries a product, instituting operational processes that diminish your holding costs for inventory can be a lifesaver during a recession. The ability to maintain a lean inventory was another factor in McKinsey’s analysis of companies that were still able to operate through the recession. It is crucial that you start now seeing where you can cut cost when it comes to acquiring, maintaining, and tracking your inventory. This method will likely require more sophisticated means of analyzing and preparing for demand. However, if done correctly, it can save the company much money during a downturn.

Diversify Your Customer Base

Depending on only a couple of large customers is perilous. This fact is even more valid in the event of a recession. Everyone is hit differently, and you have to have variety in your customer or client base to survive. This step means doing what you can to attract new customers through marketing, creating partnerships, and potentially re-defining your target audience. You can also diversify your customer base by focusing on different industries. All industries are impacted in various ways. Clients in an industry like entertainment, tourism, and retail may be hit harder than those in health care, education, or information technology. So, be sure to spread it around.

Build Your Credit Now by Getting Financing

Business owners are not the only participants in this market to be stressed to the point of playing it safe during the recession. Banks also are less likely to provide the services of financing during this time. So, to bypass this hurdle, you as a business owner should think of acquiring funding when times are good. There is not a massive need for it at the moment so the stress will be minimal, and you are more likely to attain it since banks are also not under pressure.  You can have it at your fingertips exactly when you need it. Acquiring a business line of credit also allows you to build your credit and improve upon it (which is never a bad thing during a recession).

Encourage Heightened Employee Productivity

A recession is not the best time to address productivity and performance issues with your employees. It is best to set up processes for employees to perform at their best before the stress of a recession. Work on increasing engagement and long-term commitment by enhancing employee recognition programs, allowing workers to show their creativity and innovation in line with the company mission, and honing performance reviews to give employees the feedback they need to improve. Increasing employee productivity was another factor in McKinsey’s analysis for companies that performed well during the recession.

Final Thoughts

While it is impossible to know precisely when a recession will come, it is essential to prepare for it as it is a matter of “when” not “if.” You cannot have an answer for everything, but there are some ways to ease the anxiety and stress of a coming recession by taking the time to build cash reserves, take advantage of current financing, cut costs where possible, and diversify your customer and client base. These tactics can put you and your team in a position to not only survive but thrive during another recession.


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