Way back in 2019, research from the Harvard Business Review (HBR) published a powerful statement on recessions: it’s less about if you should prepare or when and more about how you’re preparing. Why? Because twists and turns in an economy always come with an element of unpredictability. The best way to weather those is to be prepared. “Main Street has it right. Even as the debate about ‘when’ continues among economic forecasters, companies should begin to prepare themselves for the next recession…” said HBR in 2019. “Getting ahead relative to peers (even slightly) during recession gives companies an advantage that is tough to reverse when the economy is doing better.” Regardless of your particular small-business sector, there are a few key steps that all small businesses can consider taking in order to minimize the damage of whatever direction an unpredictable economy takes in 2023—or even to set your business up as “recession-proof” for the future. 1. Cut Back on Non-Essential Spending Which capital investments do you really need to make? Product launches, new programs and initiatives, and even the company retreat may need to be put on hold during a downturn so you can save the capital for the essentials that will power your organization. However, make decisions about what to cut wisely, particularly if a specific investment could help your business outperform your competitors. Also, before you decide to reduce your entire business budget to nothing more than utility payments, consider the value you receive from the expenditures you make. You may find that a few of the more frivolous expenditures you make can be classified as "essential." Cutting out non-essentials, writes Gregory Go at American Express, "...does not mean cutting cheap but morale-boosting expenses like cake for birthdays." Your team is important. And you may determine that the coffee and snacks that keep them content are a pretty affordable way to ensure they know that. 2. Reduce Inventory and Overhead The big reserves of product you are storing might have just become “nonessential,” especially in the post-holiday quiet of early 2023. If consumer spending slows, which it does during recessions and other economic slowdowns, businesses can keep less inventory on hand. Start reductions with inventory that sells slowly and/or has the thinnest profit margin. And what about the space needed to house the inventory or the team? If reductions impact work hours or workloads or the number of team members using the same space at any given time, you may find you have more space than you need. In that case, consider subleasing the space you're not using, too. 3. Strengthen Relationships with Existing Customers How are your customers doing? If you don't know the answer to this question, then it's time to ask. If you find out that any of your important accounts or clients are facing challenges or hardships, let them know you understand and are eager to work out an arrangement. There are a few benefits to this approach: You know upfront about possible problems so your team can prepare Changing payment arrangements may keep payments coming in, albeit at a slower rate, rather than facing a shut off of payments all together You build goodwill and may retain a valuable customer long-term and receive future referrals BTW, accommodating a customer that needs payment arrangements could be as simple as adjusting your billing from quarterly to monthly. You may also offer discount incentives to pay early, like 1 or 2% off, which could put your invoice at the top of their "to pay" list. 4. Consider Your Own Financing Options Prevent your own business from encountering capital and cash flow problems by looking into a lines of credit, business credit cards, or small business loans before you need them. Working with a business lending marketplace like Lendio makes the application process simple: completing one short application can help you quickly find the best financing option for your business situation from their network of 75+ lenders. Ideally, your cost-saving initiatives and growth strategies will converge to power your business through any economic challenges. But it can be a wise decision to also add financing into the equation. The influx of cash provided by a loan can give you a cushion that becomes essential if plans hit inevitable snags. Regardless of the type of business you run or how long you've been operating, when your business faces an economic downturn, slowdown, or recession, there are difficult decisions to be made. Remember, there are multiple steps (and choices, options, and strategies to choose from) to keep a business operating through more challenging economic conditions. Play your cards right and you could come out even stronger than before. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post 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.