TO: SBDC Network
FROM: MD Austin
SUBJECT: Defending Small Businesses Against a Recession
As the debate continues as to whether the US economy has entered a recession continues, at some point in time a slowdown will occur. Currently, economic handicappers believe that there’s at least a 45% chance of a recession within the next year, and some are forecasting that inflation could morph into stagflation, a condition that few if any small business owners have ever negotiated.
To better prepare for the likely slowdown, industry experts offer the following advice:
- Determine if your business needs to cut costs. Some firms may find ways to grow, especially if they find the margins in their core business have shrunk.
- Don’t over-react. Take a sober look at the economy and where your business sits, and then make appropriate changes.
- Take a look at all your costs. This may include using your SBDC advisor to assist with generating projections, forecasting, analyzing cashflow, and more to determine whether the firm can remain solvent during a downturn and to also calculate which expenses can be reduced the easiest.
- Labor costs are generally one of the firm’s primary operating costs. Be sure that the business can be cashflow positive based on various staffing levels. Also consider outsourcing work if you cannot find qualified employees.
- Try to be a “price maker” and not a “price taker”. Examine whether you need to seek out alternative supply sources to control costs. Also, be sure that your key employees are properly compensated.
- Don’t let emotion play into having to make tough decisions.
- Look to the future, which involves generating a range of projections based on different set of assumptions. Look at the business from a “worst-case” scenario and plan ahead.
- Check with suppliers to be sure they can provide you with the items you need to operate and set up alternative sources if there are concerns with your supplier.
- Examine your prices to find out how much and which items can be increased and by how much they can be “bumped up”. This may not cover all your costs, but any contribution to cover costs is positive.
It is likely that there are other ways to prepare for a downturn in the economy. However, the primary focus of clients should be to carefully examine all segments of their operation to see where they can cut costs, etc., to remain viable regardless of the changes in the economy. Consulting your SBDC advisor for assistance is a great place to start. Contact us to get started.