5 Ways to Recession-Proof your Small Business

5 Ways to Recession-Proof your Small Business

No one likes to imagine the possibility of a recession, but a shifting economy shouldn’t be ignored by business owners. Small businesses are often the first to be impacted during a downturn. They don’t have the same financial reserves to draw from that larger corporations do, and can get into trouble as a result.

Though your business won’t necessarily be affected, it’s still important to set yourself up for success during the tougher times. Faced with a rainy day, you want to have an umbrella.

Below are four ways to recession-proof your small business.

Review your inventory

Small businesses can often fall short financially when it comes to inventory management. Using a good-quality inventory system will help tighten stock control and reduce the amount of working capital tied up in stock. It’s also a good idea to compare supplier costs. You may find you can order the same item at a cheaper price elsewhere or find a supplier with lower shipping and warehousing costs. Just because you’ve always used a particular supplier or ordered a certain number of items, it doesn’t mean it’s the most efficient or cost-effective way of doing things.

Keep an emergency savings fund

Having some cash set aside is one of the most simple yet effective ways of protecting yourself. During times of economic downturn, an emergency savings fund will provide you with immediate access to cash, meaning you’ll be able to stay afloat without having to resort to borrowing. Ideally, you should have enough saved to cover expenses and employee wages for three to six months (but remember that something is always better than nothing). Adding to your emergency fund should be considered a non-negotiable expense when budgeting.

Track your cash and expenses carefully

It’s important to have a good understanding of your cash position as early on as possible. You should be regularly monitoring your monthly expenditure and know exactly where the funds are going. Having a detailed understanding of your expenses will help you to pinpoint where you can cut back and also prevents smaller expenses from falling through the cracks – these can add up quickly. It can be a good idea to properly manage your cash flow through a bookkeeper or DIY accounting software.

Maintain a good business credit score

Lending can be notoriously tight during a recession, yet businesses will often need to take out a loan to help stay afloat. Even if you’re requesting to borrow on behalf of your business, your personal credit history will still be taken into account. If you have a history of defaulting on payments or lodging multiple credit applications in a short period of time, you might find it difficult to be approved. Maintaining a good credit score is therefore important. You can access a free copy of your credit report which will list any changes to your credit score and flag any spending habits that may be dragging it down. Though you may want to avoid taking out a loan if possible, it’s good to have a back-up option just in case.

No business is 100% recession-proof, but making small changes to the way you manage your finances now will ensure your business survives, even thrives, during the tougher times.


About the Author


Bessie HassanBessie Hassan has worked at a range of iconic publications with her widely published byline appearing in The Sydney Morning Herald, The Australian, Marie Claire, and Women’s Health, among many others. In her current role at Finder, Bessie combines her interest in the digital space with her other passion – helping Australians find better.


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