Unfortunately, many small businesses suffered after the worldwide pandemic and the fight is not over yet. An expected recession is putting pressure on small and large businesses. Small businesses are frightful of what is to come and should start to prepare in case a recession occurs.
Focus on the following 4 things for your small business to push through a recession if it were to occur.
Increase Cash
Many small businesses put aside one month’s worth of business expenses in cash. However, if a recession were to occur this would not be nearly enough for a small business to survive. When a recession occurs business slows down, which means you must pay for expenses, inventory, and products/services/materials without the funding that was driven by customers and clients.
In order for a small business to survive, it has been suggested to have at least 6 months’ worth saved up, or 30% of their annual revenue. To be extra cautious, save 12, 24, 04 36 months’ worth of expenses aside. Many small business owners make irrational spending decisions while in a panicked state. Saving a significant amount will ensure you have enough even if you spend a lot during a vulnerable time.
Instant Pay
It is likely customers and clients will also struggle during a recession. Many small businesses offer payment plans, however, some clients and customers may not be able to pay off what they owe during a recession. This will lead to money loss for your small business. For this reason, it is important to receive payments instantly from clients and customers.
If you can’t set up an instant payment plan for your customers and clients, you can closely monitor invoices and their due dates. You can also encourage clients and customers to set up an automatic payment plan so that they pay their invoices on time, and keep in contact when they are late on payments.
Consider Your Credit Line
Your line of credit should be no more than the amount of cash you have on hand. Of course, that doesn’t mean you should spend all of the credit you have available. Since credit is borrowed, you don’t want to spend any of your credit if you do not have to. You should only consider credit as an additional emergency resource on top of what you already have saved in actual cash.
Since credit is normally used as a backup plan for small business owners, it is important to avoid racking up your credit bill. If a recession were to occur, the last thing you want to worry about is paying off credit card bills, while also still trying to maintain your business. You will need the extra funds during a recession. Additionally, if you do not have large credit card bills and need an extra few hundred during a recession, you can turn to a credit card to get you by.
Learn How to Adapt
Recessions will enforce you to become creative and willing. It is important to be creative, pay attention to the market that your small business is in, recognize when it is time to pivot and how to pivot, and network with others to remain calm and meet others who are in the same boat as you.
You may also want to research small business loans and credit card balance transfers. Consider all options when it comes to saving as much as you can. Furthermore, get involved with the community of small business owners, discuss how they are making it through, share thoughts and worries, and alter your mindset to a positive one to push through the really tough times.