Cover your business’s short-term needs and protect your long-term prospects
At some point, every small business owner may have to contend with an economic downturn, whether it lasts two months or two years. Unless you’re in a so-called recession-proof sector, surviving the lean times requires strategic and occasionally hard decisions. It can be even more difficult for diverse small business owners, who are more likely to already be in financial distress and who may face additional barriers in obtaining financing.1
Cash flow is the first priority
When money gets tight, your first priority is to “keep the lights on” and continue to pay yourself and your employees. To do that, you need to address your cash flow. Here are a few options:
- Make “invisible” cutbacks. Look at your largest expenses first and see whether there are ways to save money that will not be noticed by customers. For example, you may be able to use utilities more efficiently or work out better deals with your suppliers. Your landlord might even be willing to renegotiate your lease if doing so prevents them from having to fill a vacancy in a difficult economy.
- Research your financing options. You may hesitate to seek out a loan in a downturn because you’re averse to taking on new debt or skeptical that you can find terms that will work for you. But rather than reject the idea out of hand, do some research. You may be surprised to find that there could be government loan programs or private lending options that suit you. Some opportunities are specifically aimed at diverse small business owners. For example, during the pandemic, the U.S. Chamber of Commerce Foundation’s Coalition to Back Black Businesses began awarding $25,000 grants to Black-owned small businesses.2
- Find new revenue streams. Finding new revenue streams just as the economy stalls may sound a little like jumping out of a plane and knitting a parachute on the way down, but you may find opportunities if you look. Search for options that don’t appreciably increase your operating costs. Is there an online marketplace you haven’t joined yet? Can you adapt your consumer-facing services for business customers?
Once the economy has started moving again, you can prepare for the next downturn. Focus on building up your cash reserves and paying down debts to alleviate some of the pain if revenues decline. You can also appraise your assets and keep an eye on your business credit score. You’ll have a clearer sense of your financial options, should you need financing to meet cash flow needs through a dry spell.
Keep your customers and employees engaged
Making ends meet is essential, but if you’re really going to survive through an economic downturn, you also need to hold on to your customer base and keep your employees motivated. Here are some approaches to consider:
- Adjust your offerings. If your customers are feeling the pinch and can’t spend like they used to, it may make sense to assess and adjust your products to meet your customers where they are. For instance, chocolatier Isabel Garcia Nevett responded to a looming downturn by adding coffee to the in-store menu to keep retail clients coming back to the shop.3
- Reach out to your biggest spenders. If your business benefits from a small group of top customers, entice them to your business with special offers, cementing the relationship and boosting your cash flow at the same time.
- Boost employee morale with intangible perks. Keeping customer satisfaction high during a downturn means keeping your employees motivated, happy, and productive. Even if you’re not in a position to invest more money in employee benefits, you may be able to offer intangible perks such as more flexibility to promote work-life balance, more autonomy in day-to-day work, or employee discounts that don’t drastically affect your bottom line.
Address the short term, but keep an eye on the long term
When a downturn hits, it can feel like your only goal is to get through the next several months. But even as you’re focused on keeping all the plates spinning, you should keep the long-term health of your business in mind, especially when evaluating your financing options. Scrutinize potential loans to ensure that the terms of repayment work for you — today and tomorrow. Taking out an adjustable-rate loan, for example, may solve your immediate problems, but if interest rates are about to rise, it may not work for you in the long run.
You should also be careful if you lower price points on your suite of goods and services. Try to offer slimmed-down options that meet the quality expectations customers have of your brand. At the same time, avoid lowering the sticker prices of your current offerings. It may be difficult to restore prices later. Ideally, the short-term moves you make in an economic downturn should position your business to keep growing when the economy has gotten back up to speed.