10 Tips to stay Strong through Inflation and Recession

As a small business, we work hard to build and retain our client base, profits, and achieve steady growth.  When COVID hit we had to be very creative and make the changes necessary to survive and thrive in these unprecedented circumstances. Now, as we move forward we are facing financial and economic uncertainty with inflation and recession worries.  Once again we will need to adapt so we can keep our businesses strong and financially healthy.

Inflation is Here and a Recession is Likely

It is important to understand the impact that inflation and a possible recession have on small business.  All of us are recognizing that inflation is happening as prices are going up on products as well as services.  Just go to the grocery store and compare what eggs cost now vs. what they were 6 months ago.  It is shocking.  Inflation reduces the purchasing power of money, which for small business can be extra painful.  Demand for goods and services can drop, production can decrease and there is a longer wait and higher default on receivables. Basically, prices are rising but net income has not kept up.  High inflation rates can be an indication that we are heading for a recession.  Recession is when the economy is not performing well. It is a term used to describe a period of economic downturn; Business activity (trade in goods and services) is significantly decreased, GDP is down, unemployment is up and the stock market is usually going down as well. To be clear, we are not in a recession yet.  A recession is expected by most analysts in 2023 but opinions differ on how long or significant this recession may be. Clearly, both are difficult on small businesses.

Here are 10 recommendations to consider now to stay strong through inflation and recession:

1. Look at your budget – Streamline and Automate Processes – See where you might be able to save money. Are there some services that can be streamlined or cut out?  Could time intensive work be adjusted or automated with new software or automation?
2. Analyze Profit Margins – Can these margins be increased without affecting quality? Consider discontinuing products that aren’t bringing in enough profit. Also consider diversifying your market share by offering new services or complementary products.
3. Cut Expenses Wherever it is Possible – For example…Reduce overhead, cut rent with a move or work from home, substitute materials…etc.
4. Supplies and Insurance – Stock up on essential supplies knowing that the prices will likely be going up. Negotiate with suppliers and buy in bulk for savings. Buy any necessary large purchases now before they increase in price. Evaluate your insurance to be certain that you are adequately covered if you need to replace any of your assets due to damage.
5. Pricing and Modifying Accounts Receivable – Raise prices but do so cautiously. Raise prices in small increments or in ways that aren’t as noticeable. Significant increases could result in clients cutting off or reducing services or finding other services or products elsewhere. With regard to your Accounts Receivable, consider if the timing or terms of your invoices are stalling payments. Send reminders if clients are late in paying (automate if possible).  A discount for early payment can also be considered.
6. Look for new Customers – Your competitors prices may have gone up so this is a good time to put some time into looking for new customers. Are there other markets that would enjoy your current services or products? Can you collaborate with complimentary businesses to increase the reach for both of you?  Consider using cross references in emails, ads and social media.
7. Build your Emergency Fund – This is extremely important to be certain you can still pay your regular monthly expenses during downturns. The fund should have enough for 3 – 6 months’ worth of expenses.
8. Reduce High Interest Debt – Take a good look at your debt and see if you can consolidate it at a lower rate. If you feel you may have trouble with cash flow as inflation continues to rise, secure a lower cost business loan before another increase happens.
9. Concentrate on Customer Growth and Retention – Gratitude -Communicate openly with your customers and let them know how much you appreciate their business. Explore more effective marketing and ways to stay top of mind. Newsletters, blogs and social media can be very effective and cost nothing. Follow-up –  It means so much to your customers to know you care.  You can ask for feedback, address problems quickly if they have encountered any, and upsell those that are happy with your services and products.
10. Don’t forget about your Employees – Employee retention is extremely important. Replacing them can be quite expensive and time consuming. Keep communication open and employees happy. Consider cross-training your current employees in case you need to shift responsibilities, reduce your workforce or as an alternative to hiring new people.

As you begin to research and implement these recommendations, you will find the knowledge gained from this exploration will be beneficial for the future growth and profitability of your business.