5 Business Tips Your Small Business Needs to Survive Inflation and a Recession
Inflation is giving citizens sleepless nights, because of its effect on basic goods prices. And because of this inflation, economists are already warning of an impending recession due to the slowly subduing business and economic activity. Consumers are increasingly becoming wary of their spending patterns. This leaves one wondering about tools to help vulnerable small businesses survive inflation and a recession. Small businesses are more vulnerable because they usually keep a small balance sheet. This means they can easily run out of resources in their times of need.
Therefore, what are the five business tools a small business needs to survive inflation and a recession?
1. Boost your balance sheet
Boosting your business balance sheet simply means accumulating resources to sustain it when the recession finally kicks in. Remember, this works well for your business if you do it some months before the recession begins. How could I predict this? You could ask, which is understandable because not everybody is an economist. However, basic knowledge around this accepts that rapid inflation and high-interest rates are almost always followed by a recession. Therefore, you can use this combination as a pointer that another recession is coming.
How can you boost your balance sheet? There are a few ways you can do this. For example, in early 2000, Amazon, then a bookseller, sold $672 million in convertible bonds to boost its balance sheet. Just over a month after doing this, the dot com bubble burst, throwing many tech companies into delirium. Many of them folded forever, especially given the recession this burst induced (between March 2001 and November 2001). So, even if other tech companies folded, Amazon experienced phenomenal success because it had so much cash to use. And you can imagine how some inputs got cheaper during the 2001 recession?
2. Build business systems
Above, we mentioned how Amazon survived the 2001 recession. This could be a good result of having business systems and respecting what they predict. Business systems are plenty. You can have ones that help you manage your Social Media presence, Email Marketing or Campaigns, your Budget, Accounting, and Credit Monitoring. When inflation is rampant and interest rates are rising, you can see how it is doing to your cash flow by monitoring your budget, including how it’s shifting.
You can also use accounting to constantly monitor your balance sheet. That is why it is crucial for small businesses to have accounting. It is a useful tool that tells you about the money your business has and what it is making. If you do not have accounting systems in place, make sure you start building them now because a recession is coming. The last thing you want is to get into it not knowing how much money your business has. You can contact me so I can help you organize your accounting.
3. Review your business spending
Uncontrolled business spending results in cash flow shortages. But you can control this if you have accounting systems that tell you how much you have been making versus your spending, that’s why you need accounting systems. You should use these systems to predict when it is time to reduce spending in preparation for a recession. Remember, you should start preparing for a recession at a time like this – when inflation and interest rates are rampant.
4. Invest some of your cash during inflation to profit from increasing prices
One of the things that happen when inflation is rampant is that cash reserves also lose value. You find that the money that could buy you a month’s office supplies can, at some point, only buy you three weeks’ supplies. In that case, you also need to be creative to protect your cash reserves. Invest some of the money in stocks that are appreciating, especially defensive stocks such as pharmaceuticals and food producers. However, you should also know that this is cash you can need at any time, so, you better invest in stocks or investments that are easy to cash out whenever you need the money.
5. Position your business for business credit
Finally, your business should be able to use credit during a recession. Remember, a recession is a period of low growth and low interest rates. So, you can take advantage of low-interest credit to sustain your business or even expand your products or services. However, to access business credit, your credit profile should be without blame. Therefore, during such inflation and interest rate runs like this, start fixing your credit profile. If you want to know how to position your business to leverage business credit, read my Business Structure and Funding Guide, which you can purchase for $67.
In conclusion, you should always anticipate a recession whenever inflation gets as high as it is these days and interest rates are rising this fast. Costs of borrowing for businesses are becoming exorbitant, hence, they reduce borrowing and stop investing in their businesses. That is why one of our points to manage this was that you should press the pause button on some projects that are not urgent – it’s a survival tactic when prices are rising fast and there could be a cash crunch ahead. It happens with all the big businesses, which is why economic activity suddenly gets subdued, leading to a recession. If your business is going through a rough patch and you feel things are falling apart, contact me to book a business consultation session. I may help to save your business.
Frequently Asked Questions
- How can a small business survive a recession?
The major protection against a recession for a small business is to build its balance sheet. It should accumulate cash resources as much as it can.
- What businesses do well in a recession?
Businesses that produce essential goods such as food and medicines usually do well during a recession.
- How should a small business prepare for a recession?
A small business can re-look into all its existing projects and pause on some that are not urgent in order to save money. It can also develop customer loyalty programs in order to retain as many customers as possible when the cash crunch finally starts. The more customers it keeps, the more money it can generate during a recession.
- What’s the best thing to do in a recession?
A small business should avoid starting any new projects during a recession. This is mainly because consumers are generally not spending much, so, any new investment may meet low returns, resulting in the loss of cash, which the business needs to keep operating.
