Are we approaching another recession? Possibly. That is according to the banks and economists:
“Recession risks are high — uncomfortably high — and rising,” said Mark Zandi, chief economist at Moody’s Analytics.
Other financial gurus had similar sentiments back in mid-May of 2022:
- Former Goldman Sachs chief executive Lloyd Blankfein warned of a “very, very high risk” of recession.
- Former Fed chair Ben Bernanke cautioned that the country could be poised for “stagflation” — a slowing economy combined with high Inflation.
Regardless of what people think, no one can predict the future. These same economists believed there would be a good chance the next one would come as soon as 2020, after the presidential election. Well, we all know what happened in 2020.
What is a Recession?
Before we can answer how to recession-proof your North Carolina small business, we first need to understand what it is and the history behind them.
“A recession is defined as a contraction in economic growth lasting two quarters or more as measured by the gross domestic product (GDP).” (Source: History.com) The U.S. economy has seen 51 recessions or depressions since our founding and up until the COVID-19 epidemic, which ended the longest period of economic expansion on record.
The National Bureau of Economic Research (NBER) says that the U.S. averages one recession about every six years.
(Source: Wikipedia)
This chart shows all of the recessions experienced by the U.S. in modern times.
You can see here that the U.S. has experienced a number of recessions with varying degrees of severity. The Great Depression from 1929 to 1933 carved 26.7% off the US GDP, while the recession following the Dotcom bubble burst lasted only eight months at the cost of just 0.3%.
(Source: Statista)
You can see that 2020 was the U.S.’s lowest annual real GDP growth since WWII. The Covid pandemic reduced growth by 3.4% from the year before. The last time real GDP growth decreased by a similar amount was during the Great Recession in 2009, and the only other time since World War II was in the early 1980s. GDP growth fluctuated substantially from the Great Depression to the 1950s before becoming steady.
Historical Recessions
Here is a quick list of the 12 Economic Recessions since World War II, their time frame, and what was the major trigger:
- February 1945 – October 1945: End of WWII
- November 1948 – October 1949: Post-War Consumer Spending Slows
- July 1953 – May 1954: Post-Korean War Recession
- August 1957 – April 1958: Asian Flu Pandemic
- April 1960 – February 1961: A “rolling adjustment” in several industries and interest rates
- December 1969 – November 1970: Putting the Brakes on 1960s Inflation
- November 1973 – March 1975: The Oil Embargo
- January – July 1980: Second Energy Crisis and Inflation Recession
- July 1981 – November 1982: Double-Dip Recession
- July 1990 – March 1991: S&L Crisis and Gulf War Recession
- March – November 2001: The Dot-Com Crash and 9/11
- December 2007 – June 2009: The Great Recession
What Can We Learn From Previous Recessions?
During the 1920s and 1921 recession, Roland Vaile and Reavis Cox discovered that companies who continued to invest in advertising drove higher sales and growth than their competitors. They did this by dividing and comparing the performances of 3 different groups of companies; those that didn’t advertise, those that cut advertising, and businesses that invested extra in advertising.
They found that sales and growth for companies that invested in advertising grew visibly during the recession, but this also continued to grow afterward. In comparison, the other business that had cut advertising continued to see a decline up to three after the recession ended.
During The Great Recessions, more research was conducted on how companies handled their budgets. This revealed that businesses that had cut their marketing budgets initially fared better during the recession but experienced negative performances after it ended. Here again, companies that started or increased their marketing were shown to have performed better post-recession and experienced an average growth in market share of 1.3%.
23 Strategies to Recession-Proof Your NC Small Business
Recessions happen, and they are more common than most people realize, and most company managers will face several during their careers.
As a North Carolina small business owner or manager, you often wear many hats. You may also be crunched for time, and the fundamentals of excellent business management often are the first to be put off. Other items that get put on the back burner are cultivating long-term business strategies, around advanced planning, and investing in growth. However, these methods have been known to make or break a company’s success during a recession. Choose the best strategy for your small business from among these 23 options:
- Create a Cash Flow Plan
- Operate Within Your Budget
- Assess Workforce Needs
- Build Up Employee Skills
- Be Patient
- Know Your Liquidity Options
- Consider Financing Before an Emergency Happens
- Create a Business Emergency Fund
- Assess Your Organization's Risk Tolerance
- Pay Down Debt
- Find Ways to Cut Back
- Create Multiple Revenue Streams
- Modify Your Offerings
- Invest Time in Client Relationships
- Invest in Strategic Partnerships
- Consider the Pivot
- Prioritize Customer Service
- Invest in Adaptable Technology
- Make Development a Priority
- Invest in Marketing
- Don't Skip Nurture Campaigns
- Track Marketing Key Performance Indicators (KPIs)
- Create an Action Plan
1. Create a Cash Flow Plan
Running out of cash is always a significant problem for NC small businesses, but it becomes even more critical during a recession.
A surprisingly large number of business owners do not have a handle on their cash flow or even know their numbers. (It is no wonder that 82% of businesses fail because of cash flow issues, according to a study by U.S. Bank.) Make sure you know your numbers now and create a clear vision and profit plan for your future, including where your ‘lever points’ are to push or pull back depending on the economic situation.
(Source: Belinda Rosenblum, CPA, founder of OwnYourMoney.com)
My best tip is to keep track of current cash balances and monthly sources and uses of cash. Create a rolling cash flow estimate for the upcoming quarter to assist management and serve as an early warning mechanism to alert them to discrepancies.
2. Operate Within Your Budget
This is the foundation of an effective business. It makes obvious sense to stay within your budget so that your small business is in the best possible position in the event of a recession. In reality, sticking to a budget or operating plan is always a good idea. Some recessions, like those associated with the Asian Flu Pandemic, 9/11, and the COVID-19 epidemic, occur without any economic warning signs.
3. Assess Workforce Needs
Keep track of your personnel and their individual abilities to ensure they are in line with what you may need during an economic downturn. Prepare to make changes, so that staff and employees work efficiently and are structured to maximize their potential.
4. Build Up Employee Skills
During a recession, you’ll need to rely on your team to help your organization stay flexible, pivot, and think imaginatively; therefore, staff must be prepared to tackle these difficulties. Building skills and cross-training employees can help attain this goal. In practice, investing in employees can make them feel more engaged with the company and more eager to go the additional mile when called upon.
5. Be Patient
Several studies have shown that medium-to-large family businesses typically do well in recessions. The success is partially credited to multiple generations with the insight and expertise to ride out business cycles. Lower debt levels and a lack of external shareholder pressure help their ability to be patient. Patience and complacency are different.
6. Know Your Liquidity Options
Explore potential sources of capital before you need them. Consider owner infusions, revolving loans, private equity, and Small Business Administration (SBA) backed loans.
7. Consider Financing Before an Emergency Happens
Don’t put off looking for financing until you’re in a bind or a cash crunch.
Most lenders are already planning for the next recession, and you can bet they’ll tighten lending conditions when it starts. So, get funding now. Therefore, always seek finance before you need it. Low-cost financing takes time, such as SBA-guaranteed loans, bank loans, or crowdfunding. Now is an excellent time to gather documents (tax returns, financial statements), resolve credit difficulties, and examine your choices.
If you’re using personal credit, obtain a business card. Many business credit cards don’t report cardholder activity (unless in cases of default) and enhance business credit. If you need to carry balances temporarily, say if clients start paying more slowly, it may be wiser to keep such activity off your personal credit reports, so it doesn’t affect your ratings.
8. Create a Business Emergency Fund
Just as every financial adviser advises individual savers to develop an emergency fund to cover personal needs, a cash cushion is a sound investment for North Carolina small businesses. If you are a smaller business, this is especially true. The reason being is that you may not be able to quickly reach debt markets like a large enterprise business. You should create an emergency fund that can cover up to six months of living expenses, such as salary, inventory, and utilities. Collecting receivables aggressively can help you get started.
9. Assess Your Organization's Risk Tolerance
Assess your company’s risk tolerance, attitude, and willingness to take on more risk. It’s crucial to examine your leaders, staff, and systems to see how adaptable they are and how much risk they can tolerate. Missing goals have real and soft costs, like reputation management.
10. Pay Down Debt
You want your business to be as debt-free as possible when coming into a recession. This will help to position your NC small business to have the most money available in the future if needed. Debt repayment may also save some interest costs, which can be tucked away in cash or financial reserves.
11. Find Ways to Cut Back
Cutting operating expenses can be difficult because maintaining a level of quality is especially crucial during a recession. Clients shouldn’t be able to see whatever you choose to cut. When looking for methods to save money, it’s best to start with the biggest expenses and see if any minor changes can result in considerable savings, such as taking advantage of early-pay discounts from suppliers. Other examples include shifting labor among full-time workers and contractors and automating formerly manual tasks.
12. Create Multiple Revenue Streams
This strategy requires some creative and out-of-the-box thinking about how a company might generate new revenue streams while retaining its current infrastructure.
One key way to recession-proof your business is to have multiple revenue streams. Having a variety of ways you are bringing in revenue at a wide range of price points is necessary to maintain your income, regardless of the economy.
(Source: Jennifer Allwood, business coach and host of The Jennifer Allwood Show podcast)
The idea is to attract additional money without making a large investment. Consider whether you can add business-to-business (B2B) clients if you generally sell to consumers or vice versa.
13. Modify Your Offerings
Identify ways to modify an offering or service to make it more attractive to clients during a downturn. Modifications can be made to your services or how they are priced in order to cater to the way client needs might change during an economic downturn.
14. Invest Time in Client Relationships
Staying connected to your client makes sense in any economic condition, but especially during a downturn.
Invest in your client relationships! Focus on your best current clients instead of investing a large amount of money to attract new clients. When you create the best results and experience for your existing client base, they will want to do more business with you and become an important source of new clients as well.
Business owners will often overlook this as they look for more clients, but don’t underestimate your relationship currency with clients who already know, like, and trust you and your business. It’s much easier to get a repeat client, through good service and delivering on your promises. It’s also considerably cheaper than getting new clients through ads or other means.
An added benefit: happy clients act as ambassadors for your business and share their experience with other potential clients, in turn helping you to draw in new sales for a much lower cost.
(Source: Susan McVea, business sales strategist and host of Master the Sales Game podcast)
The bottom line is that understanding their evolving wants may enable your North Carolina small business to maintain income and expand your market penetration.
15. Invest in Strategic Partnerships
There is sometimes strength in numbers. Some strategic alliances might assist in making products or services more attractive to clients. Other times, it’s a poor means of dividing a smaller revenue pie. Choose partners who will boost the perceived worth of your services, as value, quality, and durability are crucial traits that clients seek out during hard times.
(Source: GIPHY)
16. Consider the Pivot
In business, pivoting involves changing your course to meet clients where they are. Pivoting is not a drastic change. Instead, it uses the current business in a new way. A pivot can sometimes be planned, but more often than not, it requires making on-the-spot decisions once the market has begun to collapse. This can be a recession-proofing strategy or simply a technique to endure a market collapse. A successful pivot necessitates retaining regular contact with clients as well as a willingness to depart from tried-and-true ideas.
17. Prioritize Customer Service
Among all business recession strategies, prioritizing customer service is the most effective method to ensure a company’s long-term stability. Customer service is necessary for repeat purchases, and repeat sales are essential for a business to thrive during a recession.
18. Invest in Adaptable Technology
The right technology can help a business stay operational during difficult times while also saving money. To avoid costly or embarrassing blunders during a crisis, it is best to have the technology installed and tested ahead of time.
19. Make Development a Priority
Too many small businesses in North Carolina want to ease off their business development plans when the business is strong. However, you are setting yourself up for failure if you do this.
Networking and business development build your pipeline and pave the way for future sales—schedule time in your calendar to brainstorm new strategies, network, etc.
20. Invest in Marketing
When you hear the word recession, many people think about where they can save money, and usually, their marketing budget is one of the first things to get the ax.
As I mentioned before, historically, small businesses that continue to invest in marketing during a recession come out much better than those who cut back or eliminate it altogether.
21. Don't Skip Nurture Campaigns
Retaining revenue is a fundamental emphasis of recession-proofing; it is critical to maintaining your marketing and promotion initiatives. Loyalty campaigns via email newsletters allow your small business to recapture old clients or increase penetration (upsells) with current clients can help maintain a healthy base.
Most everyone has heard that acquiring new clients is harder and more expensive than keeping an existing one. Research has shown that it is anywhere from 5-25% times more costly than retaining an existing one! Therefore, look to your current clients, nurture those relationships, and target your promotions to them. This will help you increase your market share if and when your competitors go dark.
22. Track Marketing Key Performance Indicators (KPIs)
Look, I will not bore you again with details of how you shouldn’t cut your marketing budget, but if you feel you need to know what part to cut. And to do that, you need data and a long history of it. Therefore you need to make sure you track the data for all your campaigns to see which messages, strategies, and techniques are working the best.
23. Create an Action Plan
Now that you have your KPIs, you can create an action plan. This is an issue that I see in companies all the time; They know they have a problem, but they don’t want to take the time to fix it or think about the idea until their business is suffering.
Any North Carolina small business owner should create a list of tasks you can do when your business slows down. This could include getting in touch with your contacts, investigating new service ideas, marketing to your most loyal clients, etc.
Final Thoughts
The bottom line is recessions happen, and the best way to weather the storm is to be prepared. In this list of 23 items, I have covered a lot. As someone who works with digital marketing for small businesses every day, I know it works well. Therefore if you want to weather a recession, you may want to consider investing in your business now so you are prepared. Also, if you need help looking at some of the other items on this list, I will be happy to assist you there as well. Feel free to contact me directly for a consultation about your small business.
