Love him or hate him, Carl Ichan has become a stalwart fixture in the financial news media. Climbing the ladder to wealth rapidly in the 1980s as a corporate raider, Ichan has always approached financial topics with a no-nonsense attitude. It was shocking to hear him say that he believes that the United States could very well be in line for a recession or even worse in the coming months. He gave this warning to CNBC reporter Scott Wapner, and the ears of everyone on Wall Street perked up.
It is not as though Carl Ichan is the first person to have voiced the opinion that the country may be headed for a recession later this year, but it was a wake-up call to hear it from such an authoritative voice.
Wall Street may be concerned, but some small business owners are panicked. They are fearful that their enterprises are nowhere near ready for the kind of turmoil that an actual recession could throw their way, and they are right to be concerned. We want to look now at how small business owners need to prepare and what they can do to weather the storm if it does arrive.
Many Small Businesses Never Recovered From The COVID Shock
A recession in 2022 is the last possible thing that small business owners need right now. Estimates range that between one-third and one-half of all small businesses that had to shut their doors during the COVID-19 lockdown period were never able to reopen. The sudden drop off of virtually all of their income was enough to wipe them out completely. Government loans and financial assistance would eventually arrive, but it would come too little or too late for many.
Now, businesses are facing the potential for a recession this year, and beleaguered small business owners wonder what they could do to keep the ship afloat.
A lucky few operate businesses that are thought to be “recession-proof.” These include outlets that deal in the following products:
- Basic foodstuffs
However, even when dealing with these relatively stable commodities, companies still need to prepare themselves for what is to come. Suppose they schedule bill payments based on expected revenues. In that case, they might be making a mistake as it is possible that even those revenues can be thrown off course at least for a while as the public tries to absorb the initial shockwave of a recession. With that in mind, it is time to take a look at how prepared your small business is for the possibility of a recession and what you can do to prepare for one if your business is not currently up to par with this.
Defining Your Readiness
There are a few things that small business owners can ask themselves about how prepared their businesses are to withstand the potential pounding that a recession could put on them. Asking themselves even a few simple questions may prove useful in being realistic with themselves about where they stand and what they need to do to prepare in the event of an economic downturn.
Question 1: Do I Have A Strong Enough Pipeline Of Business?
Is business steady and reliable already or do you rely on sporadic visits from your patrons? Companies that count on people showing up at random when they happen to have a little extra disposable income are most at risk. One of the first things that consumers do when a recession takes hold is cut out excess spending that they never should have been doing in the first place. This action can take a major bite out of profits for any company, and it is a worrying sign if you count on customers with extra disposable income.
Question 2: Do I Have Enough Capital And Cash Flow To Last For A While?
Many small businesses operate on a shoestring budget as they attempt to get operations off the ground. Glofox.com reports that 80% of small businesses that fail report cash flow problems as a major part of their downfall. This should act as a glowing red light that you need to pay attention to your cash flow at all times, particularly when you suspect a recession may be coming soon.
Question 3: Do I Have A Properly Formed Business Strategy?
Hoping for the best is not a proper strategy, and it won’t get you to where you need to be with your small business. If you are still relying on best wishes as your guiding principle, then you probably should have gotten out of operating a small business a long time ago. A properly formed business strategy means knowing precisely where all of the pieces go when you are working to keep everything afloat. You owe it to yourself and your employees to have a game plan for how you will withstand a recession.
Focus On The Core
You have asked yourself all of the right questions about where you stand. Now it is time to take action towards protecting your business against the worst possible outcomes that it may see if a recession really is going to bare down on us.
The first thing to do is focus on the core of your business. Whatever your business is known for, that is what you should spend a great deal of your time shaping and perfecting as the recession comes in. In healthier economic times, it might be prudent to explore outside the box and experiment with different ventures that could prove fruitful for you. However, when times get leaner, it is always best to perfect what you are best known for. Scale down your ambitions at least a little so you can make it through to the other side of the recession.
Exploit Your Competition’s Vulnerabilities
They say that business is a dog-eat-dog world, and it certainly becomes that way when recessions come around. In good times, there is usually enough business available for everyone. In recession times, it becomes survival of the fittest. You should take a moment to review your competition and see if they have any blind spots that you can exploit. You need to take advantage of every weakness that they have in order to claim as large of a share of the consumer base that is still available. If it means bleeding out your competition, then so be it.
Cash Is King
Investing and holding assets is generally a great strategy, but you should gather together as much as cash as possible when the tide turns. The more liquid your operations are, the more nimble you can be on your feet. You may need to have some flexibility in how you do things, so it is best to gather up your cash as much as possible until the storm clears.
Take The Next Step
After you have taken all of the steps above, we hope that you will reach out and let us provide you with advice and insights about how to get through what may be a very rough recession. We have started and successfully operated small businesses through both the 2008 recession and the 2020 COVID pandemic. Every piece of advice that we give comes from the heart and is advice that we would personally apply to the businesses that we run as well. As such, you can always trust that our intentions are in the right place and that we are doing everything we can to provide you with the resources you need to survive out there. Please contact us for additional information today.