Is a recession coming? It depends on who you ask, but members of the National Association for Business Economics predict that the U.S. will be in recession in 2020 or 2021.
While experts advise small businesses to prepare now for a future economic downturn, many aren't following that advice. According to a survey of small-business owners by BlueVine, a company that provides working capital, 80 percent are worried about a recession, but 44 percent haven't done anything to prepare for one—and 36 percent have no plans to do so.
You can take a few strategic steps now to minimize a recession's impact later. Here's what several small-business owners are doing to prepare for tomorrow.
Esthetician Beka Hussong, owner of 3BWaxing, is putting money aside so she has a year's worth of rent in the bank should her salon experience a downturn.
At The Slumber Yard, a mattress review site, owners are allocating a portion of their distributions to a separate bank account for recession savings. “It will hopefully help cover payroll costs, rent, utilities and other expenses in the event of a downturn," co-owner Matthew Ross says.
Apply for credit now, when it's easier to get.
The worst time to apply for credit is when you need it most.
Knowing that, Ann Campeau, owner of Strut Bridal Salon, has already secured a line of credit from her bank. “They are basing that on our current sales figures, which gives us more options. This way we won't have to rely on personal credit cards should things get tight," she says.
Investing less in inventory frees up cash for savings, among other options.
Campeau's two bridal salons offer wedding gowns that sell for up to $4,000 but, this year, she bought as sparingly as possible so she wasn't tying capital up in pricey gowns that might not turn over. She also added lower-priced dresses to the mix.
Ramp up marketing.
While it seems counterintuitive, investing in marketing now can help ensure a steady client base during a recession. It can also bring in the extra work needed to allow saving.
“I have hired several people to market for me because I have limited time and need to seize the moment," says Jesse Harrison, founder and CEO of HopeTree Lawsuit Loans. "I am trying to earn as much as I can now so, if I don't make money for one or two years, my business will still have enough cash to survive."
Offer or take advantage of long-term contracts.
While Clarity Online SEO usually offers its search engine optimization services on a month-to-month basis, talk of a recession has owner Shane Griffiths rethinking that. “We've recently started offering a discount for 12-month contracts to ensure steady revenue when the recession hits," he says.
Kelly Bedrich, co-founder of ElectricityPlans.com—a national retail electricity shopping site—is seeing an uptick in small-business owners locking-in long-term electricity rates. “They're currently less expensive than short-term options and the longer-term rates provide predictable expenses," she says.
Change your target audience.
Sometimes innovation is the key to survival.
Kitchen design and consulting firm Mise Designs originally specialized in restaurant projects, but new restaurants were scarce during the past recession. That's when President Victor Cardamone began targeting additional types of food-service operations.
“More established clients such as government-funded projects, hotels and senior-living facilities were still building during the last recession, so I altered the face of my company to appeal to those types of clients," he says. He expects this to carry his business through the next one.
Fearing they may have to lay off workers, many business owners are making sure that those they keep can wear several hats. The Slumber Yard holds monthly training sessions so employees can learn additional skills.
Which of these strategies makes sense for your business? Planning and good counsel will help see your business through good times and bad.