cnbc - recession and small business

Are We Really Entering A Recession? Here’s What Small Business Owners Say.

6 min read • Jun 16, 2022 • Liz Johnson

What can a survey tell you? First, 81% of small business owners are anticipating a recession in 2022. That stat comes from a quarterly survey conducted by CNBC, First in Business Worldwide, and Momentive/SurveyMonkey. 

After questioning more than 2,000 small business owners, the same survey, which focuses on feedback about jobs, taxes, and other economic topics, also found:

cnbc - recession and small business

Do small business owners think a recession is likely? A recent survey says yes — and answers more questions, too. Read the article here.

  • 40% of small businesses are raising prices to combat higher costs
  • 35% of respondents believe it’s a bad time for their business to raise prices
  • 24% of small businesses are eating any increased costs themselves

And, in terms of inflation, just 27% of small businesses feel confident that the Federal Reserve can actually control it.

Recession: Yes, No, Maybe?

In terms of a recession, are SMBs right to be concerned? That depends on who you listen to. During the past few weeks, economics experts themselves have had difficulty making up their minds, waffling between “yes,” “no,” and “maybe.”

Yes, a recession is imminent
  • “I’ve become more pessimistic about the opportunity of stabilizing inflation at an acceptable level without a recession.” JPMorgan Chase & Co. chief economist Bruce Kasman (June 12, 2022)
  • “I don’t see any possible outcome other than a recession.” Bill Demchak, CEO of PNC Financial Services Group Inc.
No, we won’t see a recession in 2022
  • “There’s no real reason to be worried about a recession. There is some slowing in the picture.” JP Morgan Chase’s Kasman (who said “Yes” just six days later)
  • “I’m relatively unworried about a recession over the next year because consumer spending has continued to be very strong, and consumers have about $2.3 trillion of excess savings that they accumulated during the pandemic that could still spend out over the next couple of years.” Harvard economist Jason Furman
Maybe we’ll enter a recession … or maybe we won’t

But It’s Not 2008 All Over Again

If it’s hard for economists to predict when or if a recession will occur and how severe one could be, it’s even tougher when you’re on the front lines as a small business owner or consumer. The most recent recession — from 2007-2009 — resulted from a mix of factors, with the housing and real estate markets as the main trigger. But according to the Economist, this time round, things are vastly different. “A recession would not look like it did after the last financial crisis. The system is just not levered like it was back then,” says Jay Bryson of Wells Fargo. The biggest differences? 

  • Stimulus money has provided a bigger financial buffer for people, and people have less debt and more savings on average.
  • As Covid restrictions loosen, people have a desire to get out again, meaning that otherwise non crucial companies” in the travel industries, housing, retail who would otherwise take a bigger hit might fare better in this recession.
  • Banks “went into 2007 with core loss-absorbing equity worth about 8% of their risk-weighted assets. Today, it is more like 13%, a much plumper margin of safety.”
  • The US dollar is stronger today than it was during the recession of 2007-2009.

Ways To Prepare For A Recession

So is there a reason to prepare? Yes — but within reason. Taking key steps to make your business more recession-proof does make sense in both the short-term and long-, regardless of whether a recession manifests. Here’s what you can do:

  • Have a line of credit available – During a recession, cash flow can become more sporadic, which can limit a small business’s access to resources and impact production. Open a line of credit before you’re in a situation where you’ll need it. Remember, you only pay interest on the portion you use and when you’re using it.  
  • Budget carefully – If you’re not already keeping close tabs on your cash flow so you know exactly what’s coming in and going out, now is a great time to start. You can use Sunrise by Lendio to get started, which helps track expenses, income, and other bookkeeping and accounting tasks like invoicing, and simplifies forecasting, too. Plus Sunrise is free to use, although there are premium options available, too.
  • Diversify offerings and be “essential.” All businesses weather recessions differently. Typically, businesses that sell “non-essential” goods or services feel the impact of a recession the most – like travel, luxury items, real estate, etc. If you want a recession proof business, consider these five factors
      1. provides critical repair services 
      2. sells consumer essentials 
      3. serves customers insulated from downturns 
      4. provides mandated products or services 
      5. sells proprietary or specialized products. 

Sometimes, however, applying those factors requires creative thinking. During the recession of 2008, non-essential subscription services, like Netflix, managed to grow — impressively, too. Home improvement stores did well, too, as consumers opted to update their existing home rather than sell during the housing crises. During Covid shutdowns, businesses, like Zoom, shifted their business models to better respond to a market they had never realized before. Even at Lendio, we quickly adopted a new business model during shutdowns and shifted our energy to PPP loans, which was what small businesses – our customers – needed to get through a challenging time.

 

*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.

Liz Johnson