Health concerns are at the top of everyone’s list these days, but as a business owner, the health and future of your company are perhaps second on the list. What does it imply for you to see local companies shutter or your firm have closed? How terrible can things get for your company, your neighborhood economy, and the country as a whole if something goes wrong? It’s also possible that people who aren’t as attentive to the news as everyone else are not as anxious or nervous. People across the country, from coast to coast and beyond, were devastated by this virus, but being glued to endless news cycles isn’t exactly a cure-all. However, neither is denial.
To begin, a recession will not be our country’s first. And it isn’t very certain to be the last. We’ve already survived difficult economic periods; if history serves as any guide, we’ll also survive this one. Fear and anxiety might get the best of us if we let them. It all comes down to taking a step back, gaining some perspective, and then putting together some practical solutions for moving ahead during a recession or even depression.
What is an economic slowdown — and what’s it mean for your SMB?
A recession, also called an economic slowdown, is a general decline in economic activity. A recession can happen when the economy experiences a sharp drop in production or grows too slowly for some time. During a recession, many measures of economic activity decline, such as employment, investment, household incomes, and business profits.
For small businesses, recessionary times can be particularly challenging since they often have smaller profit margins. In addition, consumers may tighten their spending during a recession, leading to lower sales for small businesses. As a result, small business owners need to be aware of the signs of an impending recession so they can take steps to protect their businesses.
The first step is understanding what might cause a recession and how it would impact your business. Here are some of the most common causes of recession:
– A sharp drop in production or output
– A decrease in demand for goods and services
– An increase in the cost of inputs or raw materials
– A change in government policy
Each of these factors can have an impact on small businesses. For example, a sharp drop in production could lead to less work for small businesses that provide goods or services to larger firms. A decrease in demand could lead to lower sales for small businesses. And an increase in the cost of inputs could make it more difficult for small businesses to turn a profit.
In addition to understanding the potential causes of a recession, it’s also important to be aware of the signs that it is on the horizon. Some of the most common recessionary indicators include:
– A rise in unemployment
– A decrease in consumer confidence
– A decline in stock prices
– An increase in interest rates
Each of these indicators can have an impact on small businesses. For example, a rise in unemployment could lead to less customer traffic and lower sales. A decrease in consumer confidence could lead to people spending less money overall, leading to lower sales for small businesses. And a decline in stock prices could make it more difficult for small businesses to obtain financing.
Once you’re aware of the potential causes and signs of recession, you can take steps to protect your small business. Some of the most effective recession-proofing strategies include:
– Diversifying your customer base
– Cutting costs
– Building up cash reserves
– Reviewing your insurance coverage
These steps can help your small business survive and thrive during a recession.
Let’s start with a definition of the Gross Domestic Product (GDP). GDP is the sum of all value generated in a country throughout a given year. It tells us how strong the economy is.
When the GDP decreases but does not go down, it is said that there has been an economic recession. This implies a drop in the production of goods and services, such as falling from 3% to 2%.
Slumps, recessions, and depression differ; nevertheless, one usually follows the other. It’s clear enough that the National Bureau of Economic Research must examine data and reach a conclusion that we’re in a recession technically. A recession is a period of poor economic performance that extends for several months throughout an entire economy.
Signs of a slowdown
Is the slowdown already here? Here’s what to look for:
-Long periods of inactivity in major sectors, such as travel, tourism, hospitality, entertainment, retail, and housing
-Rising unemployment and debt
-Fewer investors and consumer confidence in the market
-Disruptions to the supply chain
-Changing interest rates
Prepare your business
The word “recession” can strike dread into the hearts of a community. But with a strategy, we may overcome our paralysis in these situations.
Know your finances
Finance Fundamentals can help you organize all of the essentials. Don’t be afraid to start with a picture of your company on the market. Don’t guess; estimate how much you can afford to lose. Here are some pointers to get you started:
–Look at your earnings and losses to determine what generates the most value: Examine your profits and losses to determine a balance between expenses that reduce but generate the most revenue.
–Look at what competitors are doing in the short term: If the neighborhood bakery stays open, maybe your restaurant wants to cut back on desserts and capitalize on another area with fewer competitors, like to-go sandwiches.
-Pay attention to financial metrics: Take a look at the success indicators in your sector and industry to determine which products and services you provide that are more essential than luxurious to help your company flourish.
-Consider a line of credit: If you’re a small business, talk to your bank about a HELOC or look into the SBA if needed. Always make payments as soon as possible following an increase in sales. This can assist you in keeping your company going while also helping consumers.
-Get a grasp of your inventory: What metals and items do you have that need to be safeguarded?
-Shorten your list of services: If hair dye is a large proportional expense to your salon, stick to haircuts.
Re-valuable priorities: This is probably not the time to expand your business or take on any unnecessary debt.
Prepare your people
Keeping your workers in the know may not only be the kind thing to do but also help you keep them devoted once things begin to improve.
Ease concerns and retain employees
Communicate with employees and involve them in charting a path forward; this can help keep them engaged and ease anxiety over pending change.
Set clear expectations of what’s to come as you interact: Reduced hours, canceled meetings or conferences, and remote work. Be patient and inquire about their concerns: School closures, paying bills, etc.
Be as flexible as possible with new schedules and explain what policies, pay, and benefits will be available.
If you work with family, or solo, navigating these waters might be tricky. Here are some tips:
–Take time to listen: Since you likely know family members well, pay attention to what they say and their body language. Are they crossing their arms, defensive over impending changes? Maybe they’re looking tired from lack of sleep. Try to have an honest conversation about what’s happening in the economy, your community, and your business to reduce worry.
–Show concern: Be open and invite feedback from your family or mentors. They care about you, so return the favor by problem-solving together. You may not know your new normal, but you can provide encouragement and discuss options.
Prepare yourself for the fact that relationships may shift during this period. People will react differently to how you deal with a problem, whether they are consumers or workers. Try your best to reassure them and continue together if feasible.
A brief history of economic turmoil — and what we can learn from it
Educate yourself about the historical context of economic upheaval to help with the uncertainty. The United States has experienced seventeen recessions and slowdowns like 2015.
Lessons from past recessions and slowdowns
These warnings provide a heads-up as to where the next recession might occur and advise authorities to remain on guard and adaptable to the economy’s changes. These alarms encourage government safeguards such as many of the incentives Congress is currently considering.
Experts can’t predict everything: Some say the recession is imminent, and some that it’s impossible. Small business owners should save money for emergencies, if possible, and keep an eye on trusted sources like the Centers for Disease Control and Prevention and World Health Organization for up-to-date virus assessments. See the bigger picture.
Some money-saving tips that are never too late to start:
-A strong digital presence and a solid piece of content can help you generate organic traffic, develop word of mouth, and save money on unneeded marketing expenditures. Paying for a big logo update or additional signage might not be the greatest moment. Save the money and use the extra time to consider where your advertising funds may go furthest.
-Cut unnecessary costs. Though employees may enjoy free food or coffee, it’s much more important to ensure everyone has a job than a snack. If you have a lot of extra space to heat or cool, try working from home to save your electric bill.
It is easy to throw money at software companies for licensure and updates, but you should check online for open-source software alternatives before you take out your wallet.
-Find out how to stay current. Experiment with new marketing methods or learn about intriguing concepts that you may write about. Whatever you focus on, try to relate it to your consumers and keep them interested in your business – now, at least.
Ways to engage customers from afar:
- Offers discounts for internet transactions.
- To be used after the pandemic, promote gift certificates.
- Customers should be updated via emails and social media posts, with a balance of information and humor to lighten the mood.
- A hair salon, for example, may stream a video of the owner testing new recipes at home to demonstrate her expertise with clients.
Try to change. The most successful enterprises are adaptable. During this period, be considerate of your neighbors and fellow entrepreneurs. And don’t stop there: Innovate!
- Open-source software and video streams might help your small business take a new course. Look at areas where your organization may improve to see which ideas are best for your situation. Do you have outdated technology that delays deliveries than the company next door? Is it difficult for you to manage complex procedures and a restricted budget? You can achieve simple changes.
- Identify the problem or area where change is needed.
- Has it happened more than once? If not, you’ll have to tackle the problem differently.
- Make a list of the result you wish to achieve. For example, “I want Y rather than X.”
Small companies can frequently accomplish more in a shorter amount of time. There’s less bureaucracy and office politics to navigate before making changes. Examine your inventories, suppliers, and technology for ways you may work smarter, faster, or better. Moving staff to G Suite, for example, might help you improve communication speed by allowing you to host bi-.
What is current data telling us?
Given that no one knows how long this new status quo will endure, any possible savings is the greatest option. The Coronavirus (COVID-19) has damaged economies at both the local and national levels. We may not know how much damage it will cause until the Coronavirus passes, but here’s what the data says.
Following a recession, the U.S. economy will expand sluggishly for years. The first-quarter economic output is projected to decrease by 1.6 percent yearly, with growth picking up in the second half of 2020 and continuing into 2021. According to Zandi of Moody’s Analytics, the country is due for another recession in 2020. Meanwhile, Morgan Stanley anticipates a 4% drop in second-quarter sales. Keep an eye on the Bureau of Labor Statistics (BLS) monthly employment and cost data, including the unemployment rate and price indexes, to be released in March.
President Trump has announced the details of a $1 trillion economic package that would aid consumers and businesses in response to a weakening economy. The relief package includes $250 billion in checks sent out on April 6th and May 18th, depending on income and family size. As the virus continues to spread, President Trump is increasing the production of medical supplies and has suggested sending two military hospital ships to New York and California. We’ll have to wait and see if and how quickly the President’s ideas will take hold.
Even though we have had six years of economic growth, my plan will ensure that small firms get extended loans equal to six weeks of their payroll, up to $1,540 per employee, on the condition that companies must continue to pay employees for eight weeks after receiving the loan,” he said. “For small businesses, A significant negative: “The economy, on the other hand, is far stronger than it was during the Great Depression of 1929-32, which lasted 18 months and resulted in nearly 9 million job losses. Household debt as a percentage of GDP is historically low, down from record highs during the previous crisis.” And Americans are saving about 8%
Where does that leave the nation today?
The Chamber of Commerce urges government officials to help businesses and employees recover from the recession. Their suggestions include the following:
- Advocate for extending unemployment benefits to unemployed people who can’t afford to live independently.
- Support a tax credit to help firms continue to pay workers even if they are confined due to quarantines, closures, or regional operations.
- As a result of the epidemic, call for low- to no-interest business loans to compensate for lost sales.
The Coronavirus, according to Treasury Secretary Steven Mnuchin, will not cause a recession. However, we can’t be certain of anything until we understand how long the virus will persist in our nation. “I believe we are in the second half of nine innings. And, as needed, we will use any tools available to ensure that the economy and hard-working Americans can survive this mess,” Mnuchin adds.
Plan for the economic upturn
Many people feel that following the policy recommendations from the U.S. Chamber of Commerce above might help alleviate the Coronavirus’s economic impact. If you maintain your focus on the following areas, your company may be best positioned to reenter a post-Coronavirus world:
- Be adaptable, save money where you can, and innovate. Measures taken during downtime can help your business run more cost-effectively in the future. Maybe your restaurant will realize customers love a simple menu of only sandwiches, so you permanently cut baked goods and pizza from your menu.
- Reward employees that have been able to stick with you. On the other side of this crisis, you may see that they are more engaged and involved in the business’s success. Keep those open lines of communication to boost morale and share exciting plans.
- Support other businesses when you can. Supporting businesses supports other workers and improves your community’s overall quality of life.
Take action now on what you can influence. Prioritize what’s within your control right now. Take more time to consider how you want your company to look in a post-Coronavirus world. Attend conferences, read industry newsletters, and follow the latest developments. Finally, stay up to speed on current events by checking out websites such as CNBC and the Federal Reserve for news about the economy.
How Recessions Affect Large Businesses