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The coronavirus pandemic is slashing its way through small businesses. 

The damage is pervasive. In just one month, the unemployment rate jumped from just over 4% to more than 14%. Caught in that whirlwind were small businesses struggling to stay solvent as sales declined. 

How long the recession will last is up for debate. In the meantime, small business owners are scrambling to survive the recession and learning ways to recession-proof their businesses for future downturns. 

We emailed with more than two dozen small business owners and consultants to come up with five things you should do to make your business recession-proof. 

1. Store cash

Having cash on hand plays a critical role in meeting your operating expenses during a recession. If sales drop, your reserves can buoy your cash flow and buy you time to respond to a recession. 

The most common response we received from small business owners is to save up three to six months of your operating expenses. 

As for how you save up that emergency fund, business consultant Ruth King suggests making a deposit to your emergency-fund account every time you deposit checks. 

“The best way to save cash is to put 1% or 2% of every dollar that comes in the door in a savings account,” King said. “On a $1,000 deposit, that is only $10. A business owner can easily operate on the remaining $990...The dollars will add up over time.”

To ensure you keep your emergency cash separate from the cash you use to run your business, set up a savings account specifically for your reserves. Don’t mix the money, several of our experts said. 

And while an emergency fund is ideal, many businesses find themselves in less-than-ideal circumstances in the current recession. 

If your business doesn’t have a cash reserve, then you may need to ask for an increased credit line, open a new credit card or request a new line-of-credit loan. 

“Businesses with open lines of business credit have that specific reserve sum of money they can immediately pull from in times of need,” said Ty Stewart, CEO and president of Simple Life Insure. “All this makes business lines of credit a liquid and accessible form of capital that's ideal during times of uncertainty.” 

2. Track your expenses

Storing up cash and running a leaner operation during a recession requires attentive bookkeeping. During a recession, do a deep dive into your spending, said Brian Robben, CEO and founder of Robben Media.

“The best way to track expenses is to go line item by line item on your business credit card and checking account to account for expenses,” Robben said via email. “Doing this is tedious, though the insights are incredible. Once you do this for a few months, you'll immediately see opportunities to eliminate wasted funds or renegotiate vendor contracts.”

This method of scrutiny works if you have accounting software or services, or if you use your own spreadsheets. Hyperawareness of costs can help you see where you can save money. 

3. Review your supply chain

After examining your line items, consider where you can save money on vendors in your supply chain. “Do you have other options you can use to negotiate your current rates?” Robben said. “If you do, then ask for a new quote from all potential parties and negotiate each quote amongst one another until you get exactly what you desire.”

Pankaj Amin, managing director of consultancy SC Ventures, said analyzing your vendor pricing has another important long-term benefit.

“By now, you have alternatives, and by checking in on the pricing of an alternate provider, you will instill a culture of price comparison into your supplier network if one does not exist currently,” Amin said.

4. Focus on customer retention and expanding your base

With your cash flow streamlined and supply chain settled, you’ll need to turn to your customer base to find ways to steady your business during a recession. And depending on what you sell, customers may be stockpiling products like yours to get them through the hard times.

Robert Johnson, founder of woodworking advice website Sawinery, pointed out that you may not have control of where customers buy your products or services, though. So, marketing through social media is a wider approach that can help capture new customers in a down market. 

“You can't determine where people find it more convenient to buy or what app they consider best for online shopping, so it's best to make our products available everywhere,” Johnson said. “Customers are everywhere in social media. This is one of the most cost-effective ways to build your brand and reach out to more customers.”

Another tip is to send special offers to your customers, Robben said. 

“One tried-and-true marketing tip is to email your current or previous customers with a special offer that's valuable to them and your business,” he said. “These people already know and trust your brand, so they're more likely to buy your product or service.”

5. Be open with your employees

As the coronavirus pandemic reveals, a sudden recession can sweep down and put jobs and hours on the line in a matter of weeks. Be clear in your communication with your team; honesty is the best policy, said Dennis Vu, CEO and co-founder of business phone system company Ringblaze. 

“Be upfront and transparent,” Vu said. “Tell your employees how you’re currently doing, what the projections are for the upcoming period and how it could affect payroll and their positions. It’s better to be open than leave anyone wondering.”

  • Other advice we received from business owners includes: 
  • Balance your directness with empathy
  • Hear your employees out
  • Provide the reasoning behind your decisions

About the Author(s)

 Ting  Pen

Ting Pen is a ValuePenguin Co-Founder. She previously evaluated corporate mergers and acquisitions as a Financial Analyst at Citigroup. Her experience in financial services combined with her entrepreneurial spirit allowed for her to start her own fin-tech company. Her passions lie in problem solving, growth, and travel.

Co-Founder, ValuePenguin.com
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