6 Strategies to Recession-Proof Your Local Business

This is a contributed article from Samantha Novick, a senior editor at Funding Circle.

What's worse than a global pandemic? A global pandemic followed by a long-overdue recession. Earlier this year, experts predicted an economic downturn would follow the coronavirus outbreak. Soon after, the National Bureau of Economic Research announced the US had officially entered a recession.

However, a recession isn't a life sentence for your local business. Yes, it's going to change the economy, make business a bit more complicated, and throw a few more curveballs your way—but it's not an unbeatable predicament.

While the recession is already upon us, there are things you can do now to mitigate its impact. Below, we'll walk you through 6 recession-proofing strategies you can implement to protect your small business.

6 Strategies to Recession-Proof Your Business

1. Get a Handle on Your Cash Flow

First things first, you need to get your cash flow under control. That doesn't mean you need to cut spending—not at all. But it does mean you need to understand your new rate of revenue and expenses.

Creating cash flow forecasts is challenging right now. It's difficult to use historical data to predict sales and costs during a recession, especially since COVID-19 keeps closing, re-opening, and changing local, national, and international economies. Nevertheless, it's a practice you should still attempt.

Once you understand your cash flow situation, it's time to do something about it. If you anticipate your revenue will dip soon and expenses will increase or stay the same, you need to save in advance or secure financing to weather the storm.

Alternatively, if you expect sales to skyrocket soon, then invest in operations now to allow your business to scale unencumbered. You may need to upgrade equipment, hire additional employees, or renovate your location.

Without a handle on your cash flow, you'll be forced to react to all the recession shocks rather than act in advance. And as you'll see throughout these recession-proofing strategies, the best way to combat a recession is with a solid offense—not a passive defense.

2. Seek Financing in Advance

Don't wait until you need capital to go find it. Using your cash flow forecasts in strategy one, you should have a good idea of your upcoming financial situation. Start researching your loan options and applying for financing now to ensure you have the money you need when you need it.

Here are a few financing options to consider:

Business Line of Credit: A business line of credit is a great financing tool to help with the good times and the bad. A line of credit is there if you need it, but you're under no obligation to use it—making it a great capital cushion to keep in your back pocket in case of emergencies or cash flow gaps.
Merchant Cash Advance: If you need tomorrow's earnings to finance today's challenges, consider a merchant cash advance (MCA). This form of financing gets you immediate cash now by trading a portion of your future daily sales. An MCA isn't the cheapest form of financing, but it's quick and accessible—regardless of your credit score.
Short-Term Loan: A short-term loan gets you fast access to a lump sum of cash that you'll pay back (with interest) over the next 6 to 18 months. With a term loan, you'll have a predetermined repayment schedule, which will make budgeting your monthly expenses and controlling your cash flow much easier.
Invoice Factoring: The recession isn't just impacting you—it's affecting your lenders, suppliers, and customers, too. If you need cash now and can't wait around for your clients to pay their bills, use invoice factoring (also known as accounts receivable financing) to turn your outstanding invoices into cold, hard cash. You won't recoup the full amount owed you, but sometimes less cash now is worth more than extra money later.
Business Credit Card: A business credit card performs much the same way as your personal credit card—swipe now, pay later. It's a simple way to extend your working credit so you don't get stuck in a cash flow bind. Plus, each purchase can earn you valuable cash back bonuses, perks, and other rewards.

3. Get Smart About Your Marketing

Now is not the time to put your marketing budget under the mattress. History shows us time and time again that businesses who increase their advertising spend during a recession tend to come out on top.

However, not all marketing campaigns are created equal. Given the current recession (and concurrent pandemic), where you spend your hard-earned advertising money is more important than ever.

Right now, it may not be a good idea to invest heavily in billboard ads and downtown advertising when foot traffic is dwindling and remote work is on the rise. Nor would you want to waste your advertising spend at the local mall, college campus, or airport.

Your customers are spending more time in their homes and on the internet—but not in the ways you might expect. A New York Times analysis found that more people are turning to streaming services (like Netflix and YouTube) and social media sites, but they're doing so on their computers—not their smartphones.

Focus your marketing budget on digital campaigns where your customers are spending their time: email inboxes, social feeds, or Youtube, as examples. Experiment with marketing your business on different organic channels like Nextdoor — or even give your local marketing a little boost with Nextdoor Neighborhood Sponsorships. With a sponsorship, you’ll be able to reach new customers in specific neighborhoods near your business.

Avoid your instincts to wait out the recession. Don’t shy away from marketing spend and risk missing out on the opportunity to keep your business in front of customers.

4. Expand Revenue Streams

Putting all your sales-generating eggs in one basket is dangerous. As many small businesses across the US have experienced, relying on a single income source can be risky. Restaurants that were slow to adapt to online ordering and curbside pickup went out of business, yoga studios that relied on in-person classes collapsed, and retail stores that depended on foot traffic went under.

Start expanding your revenue streams now to diversify your income. Look for new products and services to offer your customers. Even if your local economy hasn't been hit hard by COVID-19 restrictions, start thinking of ways you can prevent the recession or pandemic from shutting down your business operations.

If you haven't yet, take your business online. Practically any business can find traditional or innovative ways to operate digitally:

Create a website
Whip up an eCommerce platform
Fill out your social media profiles
Grow your email subscriber list
Advertise online
Create a Nextdoor Business Page

Multiple revenue streams will protect your business from any recession repercussions. Yes, some areas of your business may be hit hard, but a backup plan will give you time to adapt and recover.

Beyond revenue streams, explore new ways to source, market, and distribute your products. If you're relying on a single supplier, consider spreading out your business to multiple businesses. And if you're dependent on one form of distribution (like in-person shopping), consider additional methods (like curbside pickup and local delivery).

5. Cut Nonessential Expenses

You don't always need to make more money to access additional working capital. You could be earning all the revenue your business needs to weather the recession—it just might be tied up in nonessential expenses.

Cutting expenses isn't easy, but it's usually faster (and more reliable) than trying to boost your revenue dramatically.

Grab your cash flow statements and analyze your expenses. Which are essential, and which are superfluous? Look at each cost and think, "What would happen if we didn't spend this money?"

A recession isn't usually the time for large capital investments, expensive company kickoff parties, or risky acquisitions. Play it safe and save where you can.

If you're not planning on returning to full capacity at your office, consider ending your lease when the contract is over (or sooner if the savings are worth the early termination penalties). Do you have unused warehouse space? Consider downsizing your storage or sub-leasing the space to other businesses.

Saving a few dollars here and there may seem trivial, but small savings can add up to a huge difference.

6. Show Your Local Customers Love

According to a survey from AdTaxi, nearly 3 out of 4 shoppers plan to shop small and local this holiday season. Shoppers realize small businesses have been hit hard by COVID-19 and the recession, and they want to support their community with their wallets. Make it easy for them!

Lean into local by doing your part in the community:

Partner with local suppliers and manufacturers to source your products
Give back to the community with charitable donations
Work with neighboring businesses to offer Local Deals and partnerships
Embrace the local shopping desire by promoting "shop local" messages in your advertising and communications

Everyone's been hit hard by the coronavirus and recession. Do your part to show local customers love by offering discounts and services to those in need.

For starters, begin saying "thank you" more often. Gratitude goes a long way, and shoppers like to know that their purchases are appreciated (because they could often find a cheaper deal at a big box retailer).

Go above and beyond with your customer service. Show your customers you care with genuine interactions and lightning-fast support. Be willing to go the extra mile to create memorable experiences, like a Zappos employee did when he spent 11 hours on a customer-service call.

Conclusion

Economists predict the recession will end early in 2021, but that doesn't mean things won't get worse before they get better. As 2020 taught us: expect the unexpected.

There's no definitive date when the pandemic or recession will end—and it's better to be over-prepared than under-prepared. Recession-proof your business now to prevent lingering recession effects (and future calamities) from crippling your company.

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