With ongoing financial instability, including high gas prices, the war in Ukraine, and supply chain shortages, the Bank of England recently warned the UK may be on the brink of an economic recession.
Though recessions are difficult to predict, small-business owners across many sectors should be prepared to weather these moments of financial instability.What is a recession?
If you run a small business, ”recession” is probably the last term you want to hear. But what exactly is it?
While there are many official definitions, a recession is generally seen as a major economic decline in a country’s: GDP, employment rates, industrial production numbers, and wholesale-retail sales.
When this major decline lasts for more than a few months, a recession may be declared.
Should this happen, it’s important to remain calm because recessions don’t last forever. Recessions are an unavoidable part of any country’s business cycle. And though predicting a recession is often challenging, being prepared can help make these tough transitions easier.
A cash reserve is key
Having a solid cash reserve can help any business weather a significant financial disruption.
The question people always ask is: how much should I stash away for an emergency? This answer largely depends on the operating costs of the particular business.
Generally, a good goal is to keep at least six months of operating costs at your disposal.
Building an emergency fund will allow you more flexibility if things take a turn for the worst. This extra cash can help pay your employees, rent, debts, and bills as you pull through the situation.
Establish creditworthiness
Should the recession last longer than what you prepare for, establishing creditworthiness is wise.
Loans and credits can help small businesses survive tough economic times. And while loans should never be the first line of defence, they’re a great backup plan if the situation gets rocky.
Maintaining a positive relationship with your banks and creditors will allow you to borrow money in the future.
Reexamine operating costs
Another way to prepare for a recession is to review your business’s operating costs.
Many times, you can cut out excess spending by making simple changes such as:
- Finding cheaper vendors, ensuring not to compromise on quality
- Renegotiating your lease
- Implementing new technologies
- Switching insurance
- Automating costly tasks
- Adopting remote work
- Outsourcing
The MEP sector is rapidly changing. Modernisation often means more efficiency. If you feel like your business may be out of date, you might benefit financially from adopting new technologies and business practices.
Marketing your business during a recession
During a recession, it may be tempting to cut out spending on advertising. Surprisingly though, recessions are when you may benefit from marketing the most!
Marketing your business is always essential, even during bad times. Despite a recession, it’s important to remind customers you’re still there to provide your goods and services.
Hope on the horizon
With any luck, the ongoing talk of an impending recession will prove to be overblown. Nonetheless, it’s smart to prepare for the worst. Your business is your lifeline, and taking the time to prepare for a recession will help provide you with more stability and peace of mind.
The MEP sector made a major recovery from the global recession brought on by the COVID-19 pandemic. We’ve already survived the worst, and we can surely survive what’s yet to come!