Economies fluctuate. They experience waves of growth and decline. And businesses, like boats, ride those waves. When the economy is good, businesses prosper; when the economy is bad, businesses are at risk. Recent signs suggest that we’re facing an imminent recession. Will your business be at risk? In this article, we will look at the coming recession and outline 7 ways that you can reduce the risk to your small business.
In its simplest terms, a recession is a lack of money in the economy. When people hear that there could be a recession, they spend less. And guess what happens! Demand for goods drops. As a result, demand for manufacturing drops. Then, demand drops for employees to do the job. And because of the threat of job-loss, people spend less. It’s a vicious cycle; a self-fulfilling prophecy. The secret to ending a recession is to get people to spend. That’s why the Federal Reserve (and similar central banks in each country) increase and decrease interest rates: Lower interest rates lead to more loans and more spending. Higher interest rates lead to fewer loans and less spending.
A recession is merely part of the economic cycle. We may not like it, and the central banks are effective at minimizing its severity, but a recession is bound to happen. And because it is a self-fulfilling prophecy, the more we hear about job cuts and recessions and stock exchange losses, the more likely we are to put our money under the mattress instead of spending it… which is exactly what fuels a recession!
Increasingly, news reports indicate that a recession is imminent. Even if you choose to spend your money instead of bury it in the backyard, you can be sure that there are millions of other people out there right now who are digging holes in their lawn or tucking an envelope under their mattress or reworking their budget to exclude frivolous spending. So, we can be sure that a recession is coming. Is your small business ready for the recession?
Here are 7 ways that you can prepare your small business:
1. Rework your sales material: It’s time to dust off those brochures and breathe new life into your website. Each sales piece will need to work extra hard to generate the same amount of sales. That could mean freshening up the content, sharpening the pitch, or clarifying the benefits. This is one reason to welcome a recession: if your revived sales collateral can sell in a recession, chances are that it will sell even more effectively in a period of economic growth.
2. Reposition your offering: Remember that people avoid spending their money in recessions, unless they have to. And there are some recession-proof industries which sell products that people need, no matter what the economic condition. Food and shelter are two examples. But what if your small business serves a need outside of the most basic needs that people willingly spend on during a recession? What then? One option is to align your business with one of the necessary industries. For example, you could rewrite your website content to show the importance of your product or service right now; to demonstrate why your product is, in fact, a necessary industry. For example, if you sell car tires, you could show how tires are an excellent investment because they keep families safe and ensure that people get to their jobs on time.
3. Offer additional products and services: With fewer people buying, and with consumers needing a greater reason to buy, this might be a good time to test a handful of ancillary products. One example for e-businesses might be a free bonus ebook. Create 3 or 4 bonus ebooks and allow a customer to select one as a free gift. Keep track of which ones are selected most frequently. Then, when sales pick up again, be sure to include that ebook as a sale-inducing bonus all the time.
4. Explore partnering opportunities: When the economy is smoking hot, businesses don’t always have time to brainstorm ideas with other businesses. But if your small business is looking to stay afloat, there’s probably another one in a similar situation that would be willing to talk. To find that business, forget what you offer. Instead, think about who your customer is. Identify small businesses that market a different product or service to the same customer. Approach them and talk about doubling up on advertising or perhaps selling the other’s products on consignment.
5. Reach out to previous customers: Your happy customers are a resource to you. It’s easier to convince them to buy from you again and they act as evangelists for your business to their family and friends. Even if you don’t normally reach out to this group, consider changing your habit for the next few months. Create a promotional letter, ezine, or special website where you can thank them for their previous business, offer them another product at a discount, and encourage them (with an incentive) to send you more business.
6. Relax; it won’t last forever: The recessions experienced in North America in the past 50 years have all lasted, on average, about 12 months. Maybe a few months more, maybe a few months less, but generally about that amount of time. While those months can be devastating to some small businesses, it is unfortunate that many small businesses adopt the incorrect notion that the downturn will continue on indefinitely and they take drastic measures based on that line of thinking. However, economies are cyclical and they do move through recessions back into periods of growth. So businesses that tighten up moderately — not drastically — will weather the recession much more effectively and will be better positioned at the end of it.
7. Get ready for growth: During a recession, people buy less so companies are often more flexible and willing to make a deal. Think long-term and buy your raw materials and equipment in advance. As long as your negotiated bulk discount is more than the cost of storage, you’ll come out ahead because you’ll be able to produce finished products faster (and at an overall lower price) than your competition, once the market heats up again.
It would be great if the prediction of a recession turned out to be wrong and you didn’t need this information. It would be great if small business owners could adopt a “business-as-usual” approach without any worry that their customer-base might suddenly disappear in the coming months. But there’s a good chance that there will be a recession shortly. If you take action now, your business will be better prepared for it.
allies needs to get a refund on his econ class. the feds have just come out with last quarters growth numbers. the first quarter of this year we had 0.6% growth, and that is NOT the revised number, which will come out next week ,and will be closer to 1% growth. therefore we are NOT in a recession. but keep hoping, allies, maybe it will start this quarter
how would recession effect adoption of animals??
Most economists define a recession as two quarters in a row with negative economic growth. That means six months with output going down. Really that might have no effect on most individuals or families. If the economy only shrinks by 0.5% that might not mean any loss of jobs, it might just mean some loss of overtime. More likely it means certain sectors of the economy will be taking major losses and that there will be a few layoffs. This generally leads to reduced consumer confidence (People start saving more and spending less) which is a bit of a vicious circle…Spending is what drives the economy, and this can make the situation worse. Governments then try to use their monetary and fiscal tools to get people spending again.
For most people it will have no real effect. Job security can drop off, people might be scared of getting laid off, but very few will be. Eventually the economy will get back to equilibrium and on a standard growth path again, and everything will be alright. Only in really bad cases does it get worse, these can lead to depressions which are the worst of the recessions.
Nothing. I have a steady job, own my home, and have little debt.
I also believe that the news media is blowing things out of proportion. Yes, there are some economic woes worldwide and nationally. Yes, unemployment has risen. But it is not AS BAD AS THEY SAY IT IS. We seem to be a nation built and raised on fear and panic. We accept that things are horrible, get scared and anxious, and withdraw, which by the way does create and compound the economic problem. Jobs laying off people? They're panicking, those companies, believing all the horrific news, and thus they lay off workers and compound the problem. It all comes full circle.
There are some bad situations, worse in some places than others, and there is a lot of work and clean-up ahead. We are Americans. We will persevere and survive. But it is not so terrible that we are in dire straits, every single person.
Bottom line, I'm not going overboard on spending, but I am absolutely shopping for gifts, necessities, and luxuries, thus doing my small bit for our local economy, as well as online shopping, too. I'm not leaping into situations without looking, or letting myself become paranoid and afraid. I'm keeping a smile on my face and support/encouragement for friends and family who may be feeling scared. That's what I can do.
Sure could. Recession reduces revenues (fewer people can afford to fly) and increases costs (fuel, parts, labor, insurance, financing…).
Airlines do everything on a seniority basis, and the most recently hired people are laid off first.
So be prepared to think of a backup career. Fast Food is the first that comes to mind.
This is all common knowledge.
Except for people that lose their jobs or are entering the job market most people are not effected very much. Pay increases are smaller and is harder to change jobs but mostly it just makes people feel a little anxious. Every time you hear about layoffs somewhere, you think "could that happen to me".
If the government bought tractors or gave people money with the specific instructions they must buy tractors, that would increase the demand for tractors.
However, that money has to come from some place, either taxes, borrowing, or printing. And that means less wealth somewhere else. So the farmer that needed a new barn has his taxes increased so he can't afford a new barn, but he gets a check from the government to buy a tractor even though he didn't need one. So the guys who made the tractor have jobs, the guys who build barns don't have jobs. The farmer has a tractor he doesn't need and a crumbling barn he needs to replace.
Multiply that stupidity a million times over and you have a depression, created in Washington by our bonehead politicians.
Hi William,
The economy in this country is very cyclic, you can expect a minor recession every 10 to 15 years and a major recession (such as this) about every thirty years. The last housing downturn was in the early to mid '90's then went into a boom then back down again to where we are now. So, if you think about it, this is actually the begining of the next boom. There are several reasons we are going so low this time, such as ARM loans, option arms and of course rising gas prices. The latter is the worst thing that could happen right now.
The best way to prepare for a recession (or anything for that matter) is to have as little personal debt as possible. Having a six-months-expenses buffer of easy-to-get-at cash (e.g. bank accounts, redeemable CDs, &c) is even better. The main risk for someone working for salary and not invested in the stock market is that they'll lose their job, and if you can honestly say, "if I lose my job I'm good for a while until I can find another one", you're golden.
Prices *should* go down during a recession, but may not because of price stickiness. The rising cost of gas may force some staple goods up in price as well if they need to be transported. If you shop farmers markets for veggies, your food bill will probably be OK. If you're a fan of imported French cheeses, maybe not.
As for benefiting from a recession, if you're not in the stock market, the middle of a recession is a great time to start being invested in the stock market, since everything will be on sale. Also if you've been thinking of buying a house and have good enough credit to land a mortgage, houses are very much on sale, too.