Most businesses are not ready for a recession and likely will be caught by surprise if the economy stalls. A report from Bain Consulting finds that only 43% of sales organizations have a recession plan.
However, companies that plan ahead in good times can thrive when the winds turn – capturing market share and seizing opportunities from competitors. Bain found that 86% of firms with recession plans outperform firms that delay planning until a recession hits.
During a recession, or any economic downturn, keeping your business healthy will test your skill and resolve.
The U.S. economic expansion is approaching a record 10 years of thriving. However, any small business owner can be vulnerable if they don't have plans for a downturn.
How can a small business owner protect their business? Adopting these practices will help stabilize your business, and may even allow it to grow, if the economy takes a turn for the worse.
1. Put Together A Budget
Tom Ethen, Director of SBA Lending at Stearns Bank, said small businesses should put together short- and long-term budget projections that they share with financial partners, and retain for their own use.
“Budgets serve as a goal for the small business to hit,” Ethen said. “The projection should include a target for revenue, gross profit and expenses. Make sure your budget has action plans included. What steps does your small business need to take to hit the revenue projection?
“These budgets and projections will provide the small business with a road map to meetings its overall objectives.”
2. Maintain A Healthy Cash Flow
Cash flow is the lifeblood of your business. A stable and predictable cash flow will keep your business strong.
Small businesses sometimes consider financing in down times. Repayment terms can be structured to match your cash flow situation. Financing can provide needed funds to upgrade equipment, purchase supplies or even cover payroll.
A loan through the federal government's Small Business Administration (SBA) can help you restructure debt, upgrade to new equipment, purchase inventory or obtain working capital.
With a working capital loan, a small business can cover expenses during a slow time of the year. Working capital loans help finance everyday operations, pay for long-term investments and cover accounts payable and wages for employees.
3. Getting That Small Business Loan
Small business loans are an effective financing tool in any environment, but in times of economic decline may carry additional benefits.
A small business loan can provide long-term, low-rate financing without balloon payments or prepayment penalties. This gives a small business greater control over debt management.
Ethen said it’s important to find the right financial institution to work with when you’re looking for a small business loan.
“The small business program is designed to provide credit when financing on reasonable terms is not available,” Ethen said. “Well-capitalized lenders, like Stearns Bank, are able to continuously approve SBA transactions, without interruption, even in a down economy. This means that you are more likely to get approved for a small business loan than any other types of loans.”
4. Maintain A Healthy Banking Relationship
During the financial crisis of the late 2000s, Ethen remembers taking phone calls from small business owners who had strong balance sheets, but their lenders could not provide financing.
“This was a situation where banks weren’t capitalized well enough to make more loans,” Ethen said. “We had situations where small businesses didn’t do anything wrong and their financials looked good, but they were told by banks that they couldn’t renew their loan. It was hard to find financing for small business owners at that time because outside of the small business program there weren’t many loans being made.”
Ethen says small businesses appreciate a solid lending relationship, and terms and conditions offered by the small business program. If the economy declines, the small business program can be an invaluable source of financing.
“That’s when it’s designed to really succeed,” Ethen said. “SBA lenders can provide terms that aren’t otherwise available compared to other non-government guaranteed loan programs.”
When you’ve developed and maintained a relationship with your bank over years, you have a much better chance of getting approved for financing when you need it most.
5. Don’t Cut Back on Marketing
Investment in marketing and advertising is important in any type of economy. It keeps your name in front of customers and prevents the competition from taking market share. Avoiding common mistakes is also vital.
If consumers don’t recognize your name or trust your message, they won’t do business with you. Emphasize your strengths and what makes you different and better than the competition.
Explore a variety of paid and free advertising -- social media, email, blogs, paid and organic search engine results. An active Facebook page, an eye-catching Instagram profile, or a funny Twitter account offers great ways to draw consumer attention to your business without breaking the bank.
These practices can help your small business thrive regardless of which way the economy swings. Your business plan and budget will guide you.
About Tom Ethen
Tom started his career in banking in 1991 and has been a top-performing lender with Stearns Bank for more than 20 years.
Throughout his career at Stearns Bank, Tom has been a mentor, helping others achieve success. He leads the SBA lending team at Stearns Bank, providing ongoing training and coaching.
Tom and his team work with customers to learn about their specific needs and then structure transactions to maximize the benefits of the SBA loan program for business owners.
He enjoys working with customers to learn about their specific needs. Having a deep understanding of his customers has allowed Tom to build long-standing relationships – connections that don’t end on closing day.