WHAT AN ECONOMIC SLOWDOWN MEANS FOR YOUR SMALL BUSINESS

If you pay attention to the financial news, you’ve likely heard that we may — or may not — be in the midst of a recession. While experts argue over whether or not two consecutive periods of falling gross domestic period necessarily confirm an overall decline in economic activity, small business owners have more pressing questions, like, “How is a recession going to affect my business?” and “What can I do to make sure my business survives?”

What is a recession and how will it impact my business? Economies swing from periods of expansion to periods of contraction. A recession is a period when consumers stop spending, and



this leads to an overall negative impact on some — but not all — businesses. Those that survive and thrive in a recession share certain traits: They generally have adequate cash reserves and access to capital, and they are often private companies that can quickly shift their busines


s strategies without fear of rebellion from shareholders. What you most need to know about a recession is that it tends to make customers cut their spending, so you need to be prepared to respond in a way that keeps your business available to them, keeps you top of mind, and keeps your quality as high as possible despite reduced profits. It’s a challenge, but it’s not impossible. Can I make my business recession-proof? Protecting your business against the worst impacts of recession requires some planning and a commitment to resisting panic. The planning part may feel like it’s too late if we’re already in a recession, but that’s not necessarily true. It certainly helps to have deep cash reserves or access to credit, but even businesses without those advantages can find ways to cut back and make adjustments without changing their commitment to quality and customer service.

Cut back on unnecessary spending – You may feel like your expenses aren’t out of line, but taking the time to review the last few months’ worths of credit card and bank statements tend to reveal areas where fat can be trimmed. Are you spending money on subscriptions or memberships that you don’t really need? Are you paying fees for equipment that you aren’t using anymore, or for support services that you arranged for early in your business’ life that you no longer need? Sometimes expenses are actually habits rather than necessities, and businesses — and individuals too — can usually realize some savings when they conduct a quick self-audit. Maximize your business expenditures – If your business places regular orders with the same suppliers over and over again, there’s a good chance that you can negotiate an additional discount or start buying in bigger bulk to reduce your costs. A lot of businesses are concerned about cash flow and are more open to bartering or arranging some kind of deal in order to keep a good customer in business. Reduce your inventory – You don’t want your clients to get a sense that the cupboards are bare, but if you’re in the habit of ordering several months’ worth of supplies, you can quickly cut your expenses by shifting to a three-month strategy. Alternatively, if your suppliers are hesitant about your ordering cutback, try arranging for reduced prices for long-term orders, or locking in your prices to avoid increases.

Avoid making common mistakes One thing that all small businesses can do when anticipating a recession is to learn from mistakes made by others. Conserving cash may be key, but you don’t want to do so in a way that is going to cost you money or customers in the long run. Eliminating employees is one of the biggest examples of a cost-cutting strategy that can backfire. Not only will your operation run less efficiently if you eliminate key staff, but when the recession inevitably ends you’ll need to replace them – and hiring and training aren’t cheap. If you absolutely cannot keep employees onboard, consider furloughs rather than firings in order to keep the door open to bringing valued personnel back. Cutting back on marketing expenses is another thing that small businesses often make in the face of economic downturns. History has shown that this is a mistake and that the businesses that survived previous recessions and went on to achieve bigger and better sales numbers were the ones that continued reaching out to customers and driving interest in products or services. Budgeting is hard in uncertain times, but still vital Business finances fluctuate all the time, and unless your business has already weathered a recession it is hard to forecast how it will impact your operations. Budgeting and saving are absolutely crucial in the face of a downturn. If you need assistance in weathering an economic storm, contact us to set up a time to create a working strategy.


This blog is meant for educational purposes only. Articles contain general information about accounting and tax matters and is not tax advise and should not be treated as such. Do not rely on information from this website as an alternative to seeking assistance from a certified tax professional. Perlinger Consulting partners with certified tax professionals to assist our clients.

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