LegalReader.com  ·  Legal News, Analysis, & Commentary

Business

How Can My Small Business Survive a Recession?


— December 13, 2022

Check your overall operating costs and determine what expenses you can cut.


If you are a small business owner, our nation’s current economic condition may have left you wondering whether your business could survive a recession. In reality, few small business owners prepare in advance for a recession. Budget constraints, reduced spending power, and inadequate preparedness can make it impossible for some small businesses to survive, let alone thrive. 

While the Federal Reserve has announced a second interest rate hike to reduce inflation, the U.S. is still recovering from the pandemic. As such, few small business owners can weather a poor economy or a recession. 

What is a Recession?

A recession is a prolonged economic downturn that is both “widespread and significant,” lasting at least six months or longer. Although the White House has denied we are currently in a recession. There is plenty of debate over the issue. 

According to Forbes, the U.S. annual inflation rate reached a 40-year high in June 2022 at 9.1 percent, with the U.S. GDP shrinking by an annual rate of 1.6 percent. 

How Can Your Business Survive a Recession?

What can you do for your small business to help it survive another recession? Consider the following to give your business the best chance of survival:

  1. Plan Ahead. The best offense is usually a good defense. Planning helps you get ready should the unexpected occur. You may have a business strategy, but you still need to look at the following:
  • Look back. Look at your last five years’ profit, month-to-month and year-to-year. If your business survived the 2008 recession and the pandemic, go back that far to give you an idea of how it survived. Looking back allows you to look forward and make informed predictions, therefore, better business decisions.  
  • Create a Plan C. Most businesses have a Plan A and a Plan B. Now it’s time for a Plan C, and possibly even a Plan D. Consider a range of scenarios and determine how you would react in each scenario. First, determine how necessary your business is to others when their own cash flow decreases. Then ask yourself how your business would survive if it lost a sizable percentage of regular customers. What would you do if you had to lay off employees? 
  • Examine Cash. Check your cash reserves to determine how long you could survive if these different scenarios became a reality. Do you have a line of credit you could tap? An emergency investor? 
  1. Review Your Business Plan. Review your business plan to see where you can make changes now that could help in a recession. Recessions can hit organizational structures differently, meaning a partnership might survive a recession differently than a sole proprietorship or an LLC. 

Do you sell only one product or multiple products? Which products bring in the most money and are better able to survive a recession? Which are necessary, and which might people forego if money was tight?

Woman using tablet to read about finance; photo by rawpixel.com on Unsplash.
Woman using tablet to read about finance; photo by rawpixel.com on Unsplash.

Check your overall operating costs and determine what expenses you can cut. This will give you extra rainy-day funds. Take a hard look at your employees. Which ones would you lay off in a recession? Are you prepared for severance packages? 

  1. Avoid Buying and Selling on Credit. Buying and selling on credit can be a real boost to a small business. However, in a recession, carrying too much debt or lending out too much money in a recession can significantly destabilize your small business. 
  1. Be Prepared to Pivot. This means you are prepared to take your business in a different direction to assure its survival. This may mean selling different products that are more recession-proof, rebranding, or redefining how your business operates. Think about how many restaurants were forced to “pivot” during Covid, becoming primarily take-out oriented when they had been primarily sit-down restaurants before the pandemic. 
  1. Support Your Community. When you invest and support your community, they often return the favor. This is one of the best ways to recession-proof your small business. Get involved with your community. Provide time, energy, and money to other community members in need, and they will do the same for you. 
  1. Cut All Extra Expenses Now. Some of the most common expenses you can cut during a recession include company travel expenses, extra office expenses, and “retreats” for employees. Consider moving out of your physical space (depending on your business) and allowing employees to work remotely to save money on rent and utilities.  
  1. Provide Stellar Customer Service. You don’t want your customers to decide your product is something they can cut out of their budget. If you must raise prices, talk to your customers honestly about the new prices and why you are being forced to raise them. 

Contact a Nevada Business Lawyer

If you’re looking to help your business survive the next recession, we can help. The Nevada business attorneys at John Park Law work with companies to help their businesses succeed at all levels.

We’ve got you covered – from recession-proofing your business to dealing with disputes. Call us at 702-857-7879 to speak with an experienced Nevada business attorney today.

Join the conversation!