Business Issues|Running a Small Business

4 Small Business Tips for Protection During a Downturn

How can you protect yourself and your business from the impact on an economic downturn during times of struggle? Now is the best time to prepare.

How can you protect yourself and your business from the impact on an economic downturn during times of struggle? Given our size and the limitations that put on our cash reserves and credit, small businesses tend to take a major hit in recessions.  Now is the best time to prepare while economic conditions are still relatively good to guarantee success in the long-term.

Yellow Lights Are Flashing

75% of economists predict that the US economy will enter a recession by 2021. Because consumer debt is higher now than right before the Great Recession of 2007-9, the next recession could be deeper and more severe than the previous one, according to some economists. A global trade war is ramping up and the skyrocketing federal debt also means our ability to fight one is less than it was then.

Recessions Hit Small Businesses the Hardest

A study by the New York Fed showed that recessions hit smaller firms much harder than larger ones. This should come a no real surprise since small businesses do not have access to large cash reservice like large corporations often have.  Therefore, small businesses a more difficult time weathering declining demand.  Bank loans are harder to get in a recession, and this pullback in bank lending can sap small firms’ ability to cover their operational expenses. As a result, there is an increase in bankruptcies and closures.

A Downturn Is Inevitable

Given the decade of the current expansion, few small business owners have yet to weather an economic storm.  It’s easy to see how one could be lulled into a false sense of security.  Complacency is one of the key factors that keep businesses from reacting soon enough.  Making contingency plans for a downturn are as important as making plans for growth in order to protect yourself.  Failing to do either can severely impact your business.

How to Find Protection During a Downturn

We like to share the story of a client of ours.  Jacob was in business during the Great Recession. He runs a successful insurance business

Jacob’s Story

“I started my company in 2005 at the height of the housing bubble. We came into the market focused on focusing on home-owners. In 2008, the bottom fell out of the sub-prime market. Therefore, the recession hit those owners hard. Suddenly, the houses were underwater.  They couldn’t be bothered with insurance when they were worried about paying the mortgage”

Jacob had to learn how to protect himself during a downturn very early in his business life-cycle. Jacob kept his cool.

“Markets go down, but I didn’t panic. All of us were impacted by the recession. Therefore, both my clients and I were struggling. I used this as an opportunity to better understand their issues, and I had to get creative and come up with solutions to solve them.”

4 Proven Tips to Weather a Downturn

Jacob learned some important lessons that can be applied to all small businesses.

  1. New revenue streams are key – If you can grow your topline by finding new and creative ways to solve problems allows you to offer more, better, or more relevant solutions to your customers. Is there money you don’t need to be spending?
  2. Always test your business, annually – This isn’t just smart advice for protecting against a downside, but also, for succeeding in the long-term.  An annual strategic review, even if it’s just a simple SWOT analysis, can help.  Understanding your exposure (weaknesses), as well as, your opportunities (new revenue) can help you plan for both growth and decline.
  3. Protect your niche -  It’s important that you do not lose or dilute your core capabilities while chasing sales opportunities.  Protect your core.  It will come back, and you will want to be poised to capitalize on it.
  4. Be creative in your offerings – Can you partner with other companies to expand your reach or increase your efficiency? Can you offer a revised product or new product offering that is better suited for a recessionary environment? Market yourself properly.

Summary

In summary, it is important to remember that recessions don’t last forever. The economy will come back. You just need to make sure that you have a plan to manage a downturn and that you build enough reserves to ensure a protection during downturns.

Founder Headshot

About the Author

Brian Cairns, CEO of Prostrategix Consulting. Over 25 years of business experience as a corporate executive, entrepreneur, and small business owner. For more information, please visit my LinkedIn profile

Join the 1000's who receive our weekly Small Business Tips
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Recent Blog Posts
Small Business Ratios: The Terms to Know
A sample of three of the major Small Business financial terms to know: cash flow, liquidity, and "quick or current ratios" that help in the short-term.
Small Business Banking in 2020: The 3 Things to Know
The look of banking in 2020 has changed. See how building a relationship with a banker or banking expert is even more important than ever considering a new normal.
Top 3 Small Business Financial Ratios COVID Made Critical
Financial ratios for small business is not a sexy topic. But, if there was a way to know if your business was on fire, would you want to know?
Get Where You Want to Be.
Today is the day to build the business of your dreams. Share your challenges with us — and we'll help you make them go away.
Start Now

ProStrategix Advisors Copyright 2020 © All rights Reserved.