The U.S. is in one of the longest periods of expansion ever, as June marked the 10-year anniversary of our current economic expansion. Yet there are signs we are heading towards a recession within the next year:
- The Washington Post reported earlier this year that over a majority ofeconomists say a recession is bound to occur in the next 12 months.
- Probably the most accurate, relevant (and geeky) sign is something called the “yield curve.” The yield curve looks at the gap between short term and long-range Treasury bill rates, and recently “showed the chance of a recession at 23.6% for the 12 months through next January,” Fortune reported, “the highest since the reading for the year through July 2008.”
- And finally, we know a recession is coming because that is the nature of economic cycles.
So yes, there are troubling signs of recession brewing, even with (and maybe even because of) the gangbusters economy we are in now.
Knowing this begs the question: How can your business prepare for a recession that is on its way, probably sooner than later? Here are a few helpful tips to help you start preparing now:
Pay off debts
Needless to say, money dries up during a recession. Clients are tougher to get, invoices take longer to get paid, and so on. Given that, right now is the best time to start paying off debt. During a recession, not only will having less debt make things easier, but also having access to extra capital will help during penny-pinching times.
Paying off debt is not difficult, but it does require discipline:
- Pay off high interest debts first.
- Don’t worry about paying a debt off in full all at once. Chunk it down.
- It also helps to get the lowest balances paid off.
- Speak with some of your creditors and see if they would be willing to take a lesser sum for a payment in full right now.
While this might seem counterintuitive, another good strategy once your debts are paid down is to apply for more credit cards with low interest rates. But don’t use them. Since access to capital is more challenging during a recession, having new, low-interest credit cards may come in handy down the road.
Create and build your emergency fund
If you don’t have an emergency fund, today is the day to get started! An emergency fund provides extra capital and a cushion when cash flow becomes an issue. Aim for an amount that equates to a few months’ revenue. If this is too much of a stretch, try starting small. The thing is, that extra money will provide relief and peace of mind when you most need it.
Grow your customer base
Maintaining customers during a recession can be challenging because, unless you are “the low-cost leader,” customers inevitably shop for less expensive goods and services. This is why it is important to continue to grow your clientele today. A few ideas:
- Start a loyalty program- show your customers you truly appreciate their patronage.
- Market your business, and then market it some more. Get your name out there and bring in new customers. Who knows? They can be your next loyal customer, and they might even keep you afloat during hard times.
Cut your overhead
I know, I know. I just told you to spend more on marketing, and now I’m telling you to cut costs. What gives?
The smart thing is to spend money in places where it helps you grow and cut back in other places where possible. Do a comprehensive analysis of your costs, overhead, and cash flow. What is working, and what isn’t? Where you can cut back, do so.
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A recession iscoming. How your business prepares now will help future you.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss
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