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Home Industry Trends Small business advice 2 Small Business Strategies for Succeeding in a Recession
What’s your strategy?
Between inflation and a possible recession, every business needs a strategy right now. Is it smarter for your business to face economic challenges head-on or would it be wiser to scale back this time around?
Turns out, both approaches have value, although the one you choose may help determine the path your business takes as the economy returns to normal.
Here’s how each works and what the long-term impact can be.
Desiring to pull back on spending is the most common gut instinct and an understandable impulse, especially after the past few years of economic fluctuations.
If you choose this strategy: Select your cuts wisely.
Scaling back has a few pros: you spend less money and retain more of your existing cash reserves.
But simply not spending as much requires some big picture planning and an understanding of the value each of your current expenses brings to your business.
Strategic outlook: Businesses that focus on cutbacks are likely to exit a recession with lower levels of debt, although if cutbacks impact product lines or services, reclaiming former market position once the economy returns to normal may present a challenge.
What if you take the opposite approach and push your small business forward when everyone else is cutting back? Straying from the more conservative belt-tightening path can result in big rewards for small businesses, although this strategy isn’t without challenges, too.
If you choose this strategy: Stay focused on the long-term outcome.
At first, scaling up your business during tough economic times might sound counterintuitive — cash-flow is always a challenge for small businesses, but it’s compounded when the economy is in flux. However, as economist Max Wolff told us earlier this year, growing strategically as the economy slows can be a smart move. “Because it’s a tough time,” Wolff said, “if you can put together a compelling business plan, it makes a lot of sense to grow. If you’re bigger in the market, you can sometimes get better pricing from your suppliers. You can also pass along more of your price increases to your customers because you have less competition to worry about.”
Strategic outlook: Thanks to reduced competition and greater market opportunities, businesses that remain focused on growth during economic downturns may hold a stronger market position once the economy returns to normal.
When you’re juggling a new normal for your business budget, it can seem like an economic slowdown will never end. But the truth is that modern economies start to recover in an average of 10 months. In recent downturns, we’ve seen everything from 8 to 16 months.
Big businesses frequently have budgets and reserves that can weather economic fluctuations. Smaller businesses, however, don’t always have that luxury. Ultimately, the strategy you adopt for your business during an economic downturn is the one that best fits your industry, market, and business plan. As you review your own plans for the end of the year and beyond, you may also determine that a hybrid of the two strategies—pull back in some areas while also expanding in others—that includes key cutbacks to pave the way for opportunistic expansion is an ideal fit.
Whichever path you choose, however, shouldn’t be taken lightly. Planning and preparation that helps your business operate with as little disruption as possible is the right solution.
Rachel Mennies is the owner of The Little Book, LLC, a small business that provides writing and editing services to individuals, nonprofits, and businesses of all sizes. At last count, Rachel's writing and editing skills have helped shape nearly 500 articles and blog posts for Lendio.com.
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