Signs of recession can cause stress for small business owners. While exact definitions of recession differ, it typically refers to an economic downturn lasting at least two quarters (six months).
Although tough economic times can create challenges for your company, they aren't insurmountable. The right preparation can help your business persevere and even thrive in a recession.
8 Ways to Weather the Next Recession
As soon as you notice the signs of a coming recession, start solidifying a strong financial position with these 8 smart tips.
1. Pay Down High-Interest Debt
Refinancing or reducing high-interest loans and credit cards lowers your expenses and frees up cash for other payments, savings, or operational costs.
If you have good credit, you may be able to consolidate some debts into a low-interest or even 0% loan. Then, you can eliminate these expenses faster in the face of rising rates. You might also want to convert variable-rate debt into fixed-rate loans if possible.
If you're not sure where to start with debt payoff, try the snowball method. For this strategy, write down all your account balances with the interest rates. Plan to pay the minimum balances on all but the loan with the highest rate. Then, earmark extra money for debt payoff toward that account. Once it's completely paid, "snowball" those funds to pay the account with the next-highest interest rate, and so on until you've eliminated costly interest expenses.
2. Delay Non-Essential Purchases
If you've been planning a big expenditure, consider waiting until the economy improves. In general, you should avoid spending your company's cash reserves or taking on new debt during a recession if at all possible.
Instead of investing in new equipment or adding a second location, you may want to shift gears. It might make sense to bolster your savings in case the financial landscape gets worse before it gets better. Maintaining positive cash flow should be your main priority during a recession, and big purchases can tie up revenue you may need for operational expenses.
3. Streamline Operational Costs
It's time to take a close look at your books to see where you can save money. First, see where you can cut your current business expenses. Cancel subscriptions and services you don't use and minimize costs that don't generate a positive return for your business, like travel, meals, and other extras.
Negotiating with suppliers and vendors may yield lower interest rates and more flexible payment. You can ask for extended terms or request a discount for paying your bill early. You may also want to consider bigger budgetary changes, like allowing teams to work remotely so you can save money on rent.
4. Focus on Keeping Customers
You've probably heard that it costs more money to attract new customers than it does to retain your existing clients. During a recession, take steps to boost loyalty among your audience.
You can implement a frequent buyer program, provide incentives for referring friends and family members, and offer special coupons for repeat purchases. These ideas help you maintain regular contact with your customers and follow up frequently to encourage repeat visits.
If you have to raise your prices during a recession, you may worry about losing long-time clients. However, you can retain their trust and in many cases their business by being honest and transparent about the changes at hand.
A recession also offers an ideal opportunity to improve customer service. You can build real relationships with your clients by offering flexibility with some policies, whether you extend the time for returns or waive late fees for forgotten invoices.
5. Connect With Your Community
You can boost awareness of your business and brand by taking part in community fundraisers and events. Your company could set up a booth at a seasonal festival, sponsor a youth sports team or host a lunch and learn about a topic of general interest. You'll have the opportunity to talk to your neighbors and hopefully convert some of them to customers.
Local networking also connects you with potential partners. You can increase sales by creating an informal referral network with other small business owners in your area. They'll refer customers who need your services and you'll do the same in return. Holding joint events can mutually expand your reach.
6. Create New Streams of Income
As you focus on paying down debt and increasing emergency savings, you can also diversify your offerings. Coming up with new ideas to raise revenue can prevent cash flow from slowing. Brainstorm about value-adds for your clients and new sales channels you can enter without a significant financial investment.
Small businesses that provide services can branch out into related specialties. If you plan weddings and social events, for example, try offering your project management expertise to the corporate event space.
If you sell products from a physical location, you can easily add ecommerce capabilities to your website to reach a new audience. Pay.com has the tools you need to set up online checkout in minutes, with a wide variety of payment methods and multiple ways to collect customer payments.
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7. Have a Plan B
In a perfect world, you'd have the cash reserves to cover your operational costs until the economy turns around.
As you prepare for an impending recession by saving money, cutting expenses and paying off debt, you'll improve your company's ability to survive challenging financial times. At the same time, you may also want to have a few alternative funding ideas in your back pocket.
Consider these options if your financial forecasts indicate a likely shortfall:
- Business credit cards, which you can use to cover necessary expenses in a pinch. Some cards have high interest rates, but you may be able to qualify for a 0% introductory deal if you have good credit.
- Business lines of credit, which you can keep open until you need the money. Once you draw cash or make a purchase using the credit line, you'll make monthly payments plus interest. Usually, these lines of credit have lower interest rates than business credit cards and short-term loans.
- Invoice financing, when a company buys your outstanding invoices for a percentage of the total. You'll receive the rest of the money when your customer pays the balance. While these loans can bridge cash flow gaps, they also have costly fees.
8. Consider Cost-Cutting Tech
While moving certain operations online involves an upfront investment, it can save your company money in the long-term. If you're interested in boosting efficiency with digital tools, focus on tech that covers its own costs quickly. For example, productivity software that automates regular tasks can reduce expenses and free up staff to work toward other goals.
You can also cut costs by selecting or switching to a streamlined payment service provider. Pay.com provides everything your business needs to accept credit cards and other payment methods, so you can reach a new group of customers and potentially boost your revenue.
It’s free to sign up for an account. We charge a transparent flat-fee per transaction, so it's easy to see whether our services successfully increase your sales enough to provide a return.
The Benefits of Working with Pay.com as Your Payment Service Provider
These are just a few of the ways Pay.com can help you satisfy your existing customers and attract new business during a recession:
- Multiple ways to take credit card information. You can send secure Pay Links, set up a branded checkout page on your website or social space, or enter credit card numbers manually into your Pay Virtual Terminal.
- Multiple payment methods, including credit and debit cards, digital wallets, and more. Pay.com lets you cater to customer preferences, increasing the likelihood that they'll buy from your brand.
- Detailed Pay Dashboard where you can see all your transactions and run comprehensive sales reports. You'll understand exactly how much our services cost with Pay.com's transparent flat-fee pay structure.
- Strong security measures so sensitive data remains safe. You can be sure we'll shield customer credit card numbers, preventing the potentially devastating cost of a data breach. You can even include a PCI compliance badge to show that your site meets security standards.
- Checkout pages you can customize to match the rest of your website. Strong brand recognition improves awareness of your business, a critical aspect of attracting new customers.
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The Bottom Line: You Can Make It Through the Next Recession
Fortunately, recessions aren't forever. In fact, the average period of economic downturn in the U.S. lasts about a year. By taking these proactive steps, you can shore up your small business to ride the waves and survive times of financial difficulty.
When you work with Pay.com, we'll be your payment partner through strong economic times and challenging circumstances. If a recession arises, you'll be ready when you're backed with our suite of trustworthy, transparent payment processing tools and resources.