How Does a Small Business Survive a Recession?

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During recessionary times, some small businesses will survive, some others will go into bankruptcy and some others will barely squeeze by. What happens to your business will depend a lot upon the type of business you are in and the effectiveness of your organization. Of course, there will be outside forces, such as governmental policies, that can hurt or help but we won’t go into these external things right now.

When your costs have been logically estimated, when your product inventory buying process is solid, when your products are good and in demand, when you avoid excessive debt and when your sales and marketing is active and creative the chances of your business surviving the recession are quite good.

Of course, your survival depends a lot on the industry you are in. There are many industries that are considered to be “recession proof” while others are considered to be very vulnerable to recession.

For example, companies that supply repair parts and other related products usually do well in a recession. Food and energy suppliers generally have a steady bottom line during a recession.

Conversely, luxury items tend to suffer. Things like new housing and big recreational products usually suffer during a recession. New car sales often decline considerably during a recession. If you are in one of these businesses you should take steps to diversify your portfolio in order to preserve and protect your business during the recession.

In this economic slump you can expect lower sales in most cases. You can also expect customers and vendors to take longer to negotiate contracts. You should also be ready for customers to take longer to pay or even fall behind on their payments. You should likewise expect vendors to demand payment quicker than usual. All of these are things that you should be ready to address over the next 12-24 months.

One of the keys to surviving a recession is maintaining your cash flow. This is critically important to a small business during a recession. This means that you will need to find ways to control your expenses, to find better interest rates and terms on loans and to quickly liquidate excess inventory.

Always keep a close eye on your margins and make sure you figure your payroll, marketing, rent and supply costs into this calculation. You should pursue any accounts receivables aggressively. Consider refinancing any existing loans to get better terms and to help your cash flow. Taking these steps will help insure a smooth cash flow for your small business during the recession.

Maintain a strong marketing budget. Many make the mistake of cutting back on marketing first during a recession. Don’t do this. You will need the new customers to help maintain your cash flow as existing customers cut back. Instead, find other areas of your business to cut while we face this economic slowdown.

Remember though that your best prospects are your existing customers. Maintain good marketing ties to them and encourage them to continue buying from you in spite of the current economic downturn.

Also, make sure that your inventory is moving so that you generate an adequate cash flow. Use pricing strategies such as price cuts, bundling and special deals to insure that product flows out and cash flows in. Don’t let product sit around. Get old and slow moving merchandise out the door quickly.

This entry was posted on Monday, December 11th, 2017 at 8:44 pm and is filed under Recession. You can follow any responses to this entry through the RSS 2.0 feed.

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