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8 Ways to Recession Proof Your Small Business or Startup

Recent news about the economy tends to suggest that a recession is coming; it’s just a matter of when. This means that now is the time for business owners and startup founders to start looking for ways to protect their businesses from a recession’s impact. 

“This recession will be longer and deeper than many are forecasting, and there will be small businesses that haven’t positioned themselves conservatively from a financial standpoint and it could have a significant negative impact,” explains Eric Hovde, CEO of Sunwest Bank, a bank that specializes in working with small businesses and startups.

If most experts agree that a recession is on the horizon, what can you do to protect your business? Consider some of these options: 

  • Create a Budget and Live Within It – Recessions are a time for highly disciplined spending. Know your “have-to” expenses and plan to meet them while avoiding excessive spending.
  • Plan for liquidity – Know where you’ll get money – or already have it – if you need additional resources to get through. Consider establishing lines of credit or revolving loans to be there when you need them, put aside your own assets for a needed capital infusion, think about private equity, and don’t forget Small Business Administration loans.
  • Create an Emergency Fund – Try to avoid using credit if you can. Instead, set up an emergency fund that can cover up to six months of your essential expenses, including your payroll, utilities and rents, and inventory. You can start by working a little harder to collect receivables to bring in more ready cash. You may also want to look at Business Continuity Insurance as another way to achieve this goal.
  • Assess Your Staffing Needs – It’s hard emotionally to look at cutbacks in a small business. But now is the time to ensure you have the right personnel and number of them. Improve current employee skills and efficiency and reduce new hires.
  • Outperform Your Competition – Easier said than done, but try to be a market leader, the company your clients want to go to first. Understand your strengths and weaknesses. Take advantage of your strengths and improve your weaknesses.
  • Be Flexible with Your Clients – You and your clients will all struggle to various degrees in a recession. Use pre-planned flexibility to build client loyalty. Offer trade-offs for prompt payment or larger orders. Provide the service and convenience they need in a tough time.
  • Getting out of Debt – Debt isn’t always a problem, but it can be overwhelming in a recession. The more you pay off now, the more you can borrow if you need it during a recession-induced emergency.
  • Reduce Expenses and Overhead – Cut overhead and expenses as much as possible without damaging your operations. But, be sure you don’t look like you’re panicking to your clients. You’re being prudent, not desperate, and that’s what they should see. Reduce your constant costs in any ways you can without cutting essentials.

Taking these steps before a full-blown recession is upon us can ensure that your business will be one of the hardy survivors of tough times.

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