As a business owner, the word ‘recession’ is not one that you want to hear. Sadly, it’s one of those unavoidable events you cannot control – all you need to do is work out how to survive.
We’re not going to sugarcoat the truth here – it will be hard, and it will take hard work. But a recession doesn’t mean the end of your business.
Many have survived worse, and if you take careful steps and planning, you can survive one too.
To help you, we’ve put together this guide on how to survive a recession as a small business, including tips and strategies for saving money, looking after your cash flow, and encouraging your customers to stay loyal.
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What should small businesses do in a recession?
The biggest piece of advice that we can give to small businesses in a recession is not to panic and make rash decisions.
We’ve spoken time and time again about how important it is to make a business plan (and why 1 in 5 new businesses in the UK fail because they don’t plan).
During a recession, times will be tougher, budgets more constrained, and customers harder to come by. But with careful and realistic planning by your side – you will make it through this as well.
Be smart. Make a plan. And then get to work. Speaking of getting to work, let’s get into the top tips to survive a recession as a small business.
1. Audit and access all your software
These days, it can seem like there’s an app or program for everything to do with your business. And although they serve a purpose, when you put them all together, you might find that you’re spending an excessive amount of money on basic software just to do your job.
So, the first thing you need to do is make a list of all the apps, tools or programs that you are using. Then, you need to access them, asking:
- Is this app or tool essential?
- Can I find it cheaper (or free) elsewhere?
- Could I build this internally?
- Can I get these features with another app?
In a lot of cases, especially for small businesses, you might find that there is a free version of apps or software available, especially for small teams.
For example, if you take a look at our reviews of the top-rated accounting software in the UK, you’ll see that a few options, such as ANNA Business Tools and Zoho Books, have free tiers to get started.
Top-Rated Accounting Software:
|Accounting Software||Cheapest Package||Ease Of Use||Our Rating||Review||Official Site|
|£19/mo||Excellent||Read Review||Visit Website|
|FREE||Outstanding||Read Review||Visit Website|
|£12/mo||Excellent||Read Review||Visit Website|
Similarly, Hubspot is free for small businesses, while alternative platforms like SalesForce are £240 a year. In addition, OfficeLibra or Google Docs are free alternatives to Microsoft Office, and Figma is a free alternative to Adobe Photoshop.
All of them are just as good but will save you valuable money at a time when looking after your cash flow is your top priority.
You might find that the features you’re using on one piece of software can be combined into another. So instead of paying for two, you pay for one.
For example, going back to the accounting theme, some software options will have features such as time-tracking, invoicing, and payroll – allowing you to access all three from one piece of software.
2. Negotiate with your suppliers
For those essential costs you can’t avoid – it might be worth using this time to try renegotiating with your suppliers. If you’ve been with them a while, maybe it’s time to look at a loyalty discount or deal they can offer you to help cut costs.
Think of them as car insurance or internet providers. Often, being with the same company for years doesn’t pay – and it’s not until you find a better deal elsewhere that they can bring down your monthly bills.
For some businesses, it could be exactly these contracts that you’re trying to negotiate. In which case, get on the comparison sites and give the customer survive a ring as soon as you can.
Timing-wise, if you’re going to negotiate contracts, try waiting until the end of the month. This is when sales teams are more likely to be flexible to help hit their own targets.
3. Think small and local for events
If events are a big part of your marketing, then there’s no reason that you can’t carry on doing them during the recession.
However, rather than spending money on flashy restaurants or hotels to host your guests, it might be a good idea to think local and strike up deals with local cafes or restaurants.
By going local, you can often get better deals when renting space – while the owners benefit from the added footfall you’ll provide. The recession affects all businesses, after all, so teaming up to help each other out will work out in both of your favours.
For small businesses, hosting local events can also help give your business a more caring and down-to-earth look during the recession. That certainly could help potential clients get the best impression of you, and work out in your favour while saving you money. A win-win.
4. Team up with local SMEs
A recession affects all businesses. Rather than trying to brave the storm alone and clawing the eyes out of anyone else that dares to step on your path, it’s a better idea to turn to other SMEs in your area for help and advice.
As long as they’re not your direct competitors, by building relationships with other SMEs, you might find ways to drum up new business, get access to a new audience, find cheaper suppliers, or team up as partners to host an event with.
As the saying goes, if you scratch their back, they’ll scratch yours. And during a recession, you should take all the help you can get.
5. Recycle and reuse where you can
This tip isn’t just for the eco-conscious, but for the money savers. Whatever industry your small business is in, there are hundreds of green tips to recycle and reuse the materials you have on hand to save your operational costs.
For example, this could be reusing packaging for your items, creating digital notes and files rather than paper, or handwriting addresses to save on printing costs (if this doesn’t eat into too much of your time!).
This saving tip also applies to your energy usage – as some SMEs have managed to half their energy bills by using green energy solutions.
6. Rent over buying
Covering the cost of new equipment can be difficult when trying to keep your cashflow as protected as possible. If you’re trying to protect your reserves and need to invest in new equipment, it might be worth considering renting over buying.
This means that, instead of spending £5000 outright on a new computer, you could spend £400 a month renting or leasing it instead.
Over the long term, renting would cost you more than buying. However, renting will work out better for the short term by ensuring you have more cash reserves in your coffers to last throughout the year (and can start earning back while you’re paying for it!) rather than taking the lump sum in one go.
This could also work the same with car leases or even finance agreements in certain cases. If there’s no renting option available, you might want to consider buying second-hand or investing in refurbished products to save some extra cash.
7. Make forecast charts and plans
We’ve mentioned before the importance of making a business plan. If you haven’t already, you can follow our step-by-step guide on how to complete one here.
Now, during a recession, you’re going to want to take this a step further and create a financial forecast for the next 3, 6, and 12 months.
During these forecasts, you’ll want to trail different scenarios, including the worst cases, allowing you to plan what to do to get out of the situation.
Once done, you’ll want to monitor your finances closely and compare them to the different plans you have set up. This will help you determine if your finances are on track, doing better than expected, or going into the deep end at the very earliest of stages – and allow you enough time to adjust your strategy accordingly.
8. Reconsider your debts and finances
If you currently have any debts, the temptation could be to get them all paid off as quickly as possible so they’re not hanging over your head in a recession.
This idea sounds good in principle but means that you’ll be using a lot of your cash reserves, giving you less of a backup to rely on.
During a recession, you need to make sure that your cash reserves are protected no matter what. So if you have existing debts or financial arrangements, you might consider taking out a new loan or financing plan to help cover these costs during the recession.
This would free up your reserves when you need them the most, and once your finances have settled down, you’ll be in a better position to pay it off.
Like any decision about your finances, we wouldn’t recommend taking action until you’ve talked to your accountant. Every finance deal and account is different, so they’re the ones to turn to get detailed advice and the pros and cons of each decision.
If you don’t already have an accountant, you can find your online accounting match here.
9. Focus on saving
To save as much cash reserves as possible, you might want to consider moving the money that you would normally reinvest into your business into savings accounts for the time being.
The same could go to dividends that normally get paid to the shareholders – which, for the time being, are being held onto by the company until you see the other side of the recession.
This option isn’t always available to businesses – and there will be instances where reinvesting the income will help drum up new clients and income for the future.
This one will need careful consideration. The crux of the matter, however, is to be careful about any cash you already have and make sure it’s used in the best possible way to strengthen your cash reserves.
10. Review your pricing and payment terms
No one likes putting their prices up – particularly in competitive industries where the lowest price tends to win. But needs must sometimes, and if your current price structure isn’t working, then you might have to revisit your pricing.
If you do increase prices, it’s best practice to issue a statement alongside the rise explaining why you’ve done it. In most cases, customers will be understanding provided they have an explanation and remain loyal to your brand.
In contrast, if you don’t explain why you’ve raised prices, some might assume that you’ve done it to take advantage during a recession – damaging your reputation.
As well as pricing, you might want to consider relooking at your payment terms, shortening the time between when an invoice is sent and when payment is expected. This will help cash flow come in at a faster rate and hopefully reduce the time between payments.
11. Carry on marketing
Marketing is how you promote your business and gain new customers. Even during a recession, you need to make sure that you carry on putting your efforts into your marketing strategy, even if you have to tighten the belt when it comes to spending.
The good thing about marketing is that there are many free ways to promote your business, particularly online, including social media, email marketing, and more.
What’s more, you should make sure that you try and focus your efforts on existing customers. This is because it’s far more expensive to attract new customers than it is to sell to existing ones, meaning you’ll get a better ROI by going after the people you already know.
In some cases, this is an easier task as well, as they already know who your business is and what your products are and have first-hand experience with the quality you offer. Now, they just need nudging in the right direction to buy again.
This can be done by:
- Sending regular emails or newsletters to your customers;
- Following up on old leads or any prospects that have gone cold;
- Find customers who haven’t purchased in a while and remind them of your brand and product with a welcome-back discount or gift;
- Get on social media and make sure your business is seen by others.
If you’re looking for inspiration, check out our guides on how to market a small business on social media and 7 affordable small business SEO tips your business needs to know.
Stay positive, plan ahead, and survive
Surviving a recession as a small business is no mean feat, but with the tips in this guide, you should have the tools and knowledge you need to make it through to the other side. Just remember:
- Don’t panic or make hasty decisions;
- Make plans to create realistic strategies;
- Assess your current finances and protect your cash flow.
And if you can, try to keep positive. A recession doesn’t mean automatical failure, and although the road ahead is tougher, it’s not impossible.
For all other business tips, advice, and news on running your business, we’ve got you covered at Business4Beginners.