Recession … Are You Prepared?

posted by Administrator on 07/05/2022 in Blog Posts  | Tagged , , ,
By: Tom Cramer


One of the most challenging responsibilities in managing a small- to mid-sized business is attempting to use a crystal ball. While it is your role to look down the road and anticipate the threats and challenges your enterprise may face, that can be a very tall order to fill.

Economic Signals and Weather Forecasts

Of course, we know there is no absolute way to know where the economy will be in six to twelve months. However, the business cycle is a reality and has been for centuries. Likewise, there are indicators that provide some fairly reliable ways to anticipate the trends and directions of the economy. Even the best economists and analysts are only partially right in reading these indicators and are often 100 percent wrong. 

For example, the leading economic figure in the nation, Janet Yellen, had to confess on CNN, “I think I was wrong about the path that inflation would take.” If these leaders who study the economy daily can be so wrong, what can you as a business owner or manager do to plan based on economic ups and downs?

What is a Recession?

One of the interesting aspects of business cycles is the way one generation learns an economic lesson that, a few decades later, a younger generation of business people must learn again. The Great Recession was now 15 years ago, and most small businesses have grown significantly during that time. A recession would be a new and scary experience for them.

The basic definition of an economic recession, according to the National Bureau of Economic Research, is when there is a “significant decline in economic activity spread across the economy, lasting more than a few months.” While a recession is painful, the larger concern is the possibility of it leading to a more damaging depression.

The impact of a recession results in a decline in real income, the loss of jobs, and an overall slump in production and manufacturing due to a drop in consumer spending.

Since most smaller businesses do not have the capital reserves and financing options of larger businesses, these impacts can be serious. Unfortunately, they are often fatal to businesses that do not plan and have not achieved strong profits and balance sheets. 

Planning for the Possibility

While it is impossible to rely on that crystal ball, it is true that current indicators show the risk of a recession has moved to a near probability. The multitude of factors showing a bearish economic direction includes inflation, the ongoing supply chain crisis, and dropping consumer confidence. Whether you are reading this as current news in 2022 or several years from now, the points here merely reinforce your role as a planner and crisis manager.

Thus, each changing situation requires you to evaluate what you can do to lessen its impact and survive. In this case, that includes the possibility of a recession. As we note here often, panic is never the correct response for the creative business owner and manager. Rather, managing crises is a part of the job description, and every challenge presents an opportunity to outperform your competition.

Here are several immediate steps you can take to prepare for an economic downturn:

  • Focus on cash flow and cash reserves. While cash is always king, it becomes even more vital in a recession. Plan now on conserving capital and increasing any available vendor and bank credit lines and minimizing any unnecessary expenses.
  • Develop a plan that protects your marketing initiatives. A common knee-jerk reaction for many businesses is slashing marketing. While you want to ensure your marketing spend is as efficient as possible, short-term cuts in marketing can have a long-term impact on your success. This is where you may well get a step or two on your competition.
  • Evaluate areas where automation may help you survive necessary staff cuts if demand falls significantly.
  • Focus on existing customers. Recessions hurt everyone, but they do so unequally. Show your customers you have their backs in tough times and you will develop a loyalty that will generate a long-term return on investment.

Most importantly, act short-term with a long-term perspective. Don’t feel defeated and don’t give up. A recession helps focus your operations and is often a needed opportunity to improve efficiency and eliminate unprofitable activities.