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How to Survive and Thrive in Business During a Recession

Mike Milan
Posted by Mike Milan on Jul 13, 2022 8:52:59 AM

Small businesses are the backbone of the American economy, and during a recession, they are often the ones that suffer the most. But with a little creativity and effort, small businesses can thrive during even the toughest times. Here are a few tips to help you increase revenue for your small business during a recession.

What is a recession?

A recession is a period of time when the economy is in a downturn, and businesses suffer from decreased sales and lower profits. To quickly identify a recession, economist Julius Shiskin developed a definition that has become the standard since 1974. Simply put, when the US economy’s output (aka GDP, Gross Domestic Product) shrinks for two consecutive quarters, it is assumed that there are significant underlying issues causing the contraction.

Some of the factors that can cause a recession include high unemployment, inflation, or a decrease in consumer spending. After all, the sign of a healthy economy is growth or expansion. These warning signs indicate obstacles to growth.

How does a recession affect your business?

A recession can have a major impact on your business, causing decreased sales and lower profits. During a recession, customers may be more reluctant to spend money, and they may also have less disposable income. This can lead to a decrease in demand for your product or service, which can hurt your bottom line.

How can you reduce business expenses during a recession?

More than any other time, every dollar counts during a recession. It’s easy to say that you need to cut costs, but often we shy away from costs that we consider to be “fixed”. In my experience, controlled costs are the ones that are the most like to get out of control. Here are a few places to look to keep more money in your company.

1. Evaluate your expenses and make cuts where necessary

This is the easy one. You know where the fat is. You just have to make some decisions. I use this chart as a framework to make decisions. This chart can be found on page 142 of my book, “Don’t Be A D.U.M.B. Business Owner.”

I cant afford it

2. Evaluate your business model and make changes if necessary

Think about how you deliver your goods or service. After the pandemic, everything was up for review. Ask yourself if the old way of doing business is still the best way.

3. Reduce the amount of money you spend on marketing and advertising

I can’t believe I just wrote that. But I’m offering this up as an option during the recession because of the lack of consumer spending. Do this with caution because you do not want to kill your presence in the market.

4. Cut back on employee benefits and perks

This is the one that will hurt the most. Unfortunately, for the survival of the business and to save the most jobs, you may have to cut back on some of the “extras” your employees have come to take for granted.

5. Renegotiate contracts with suppliers and vendors

Start with relocation as a way to save money. Most small businesses rent their space. Is now the opportunity to develop a remote workforce? Even if you don’t move, landlords are more likely to renegotiate leases to maintain occupancy.

How can you increase revenue during a recession?

Small businesses can increase revenue during a recession by focusing on increasing revenue through new customers or by retaining current ones. You may already have strategies resulting in high customer retention, but winning new customers, especially when I've already recommended marketing and advertising reductions, can be more challenging. 

One way to increase revenue through new customers is to research your target market and identify where they are spending their money. Once you know where your target market is spending their money, you can create a marketing and advertising campaign that targets that market. In other words, now is the time to cut broad and often ineffectual campaigns and create focused campaigns that will provide an ROI. After all, that is how we now have alcohol delivery services here in Texas!

Another way to increase revenue through new customers is to offer discounts or loyalty programs. Offering a discount may entice customers who are on the fence about buying your product or service to make a purchase. Loyalty programs can also help you retain current customers by giving them an incentive to continue doing business with you.

Conclusion

A recession can be a difficult time for small businesses, but with a little creativity and effort, you can thrive during even the toughest times. By understanding what a recession is and how it affects your business, you can make the necessary cuts to keep expenses under control. You can also focus on increasing revenue through new customers or by retaining current ones. With a little effort, your small business can weather the storm and come out stronger on the other side.

Topics: Financial Advisory


 

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