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How to Recession-Proof Your Small Business

American unemployment is at 50-year lows. The U.S. economy is about to finish off its 10th consecutive year of expansion. And yet a large majority of American small business owners are working to recession-proof their businesses.

According to a recent survey by Bank of America (a comprehensive look is available for free here), 69% of roughly 1,500 U.S. small business owners say they have “taken steps to protect my business.” Those steps range from establishing an emergency fund to opening a line of credit to stress-testing the business.

Millennials are most uncertain about the future, with 79% of business owners in the 23-to-37 age range reporting that they’ve taken steps to prepare for a potential economic downturn.

None of this is to say that a recession is imminent. Yes, you may have seen a few headlines about an economist or two projecting high chances for a recession in the next 12 to 18 months, but they’re in the minority. Still, even the mere fear of a pullback is enough to prompt most small business owners to work on their preparedness now – and that’s a goodthing.

Recessions are a natural, regular occurrence in every economy, and strengthening your foundation now can mean the difference between business survival and death when things take a turn for the worse. So if you’re not already in the majority of small business owners prepping for a bad-case scenario, it’s time to join them. Here are five tips on how to recession-proof your business.

5 Tips for Recession-Proof Your Small Business

1. Know Your Supply Chain: You need to become intimately familiar with your supply chain if you’re not already – and more importantly, you should become familiar with potential alternative options. Recessions don’t deal out pain evenly across the board. It’s possible that your products will remain in high demand – but one of your suppliers could get crushed as other customers’ orders dry up, leaving you in the lurch. Start putting out feelers and get to know other companies that can provide what you need in case a lousy economy forces you to make sudden adjustments.

2. Diversify Your Revenue Stream: In a similar vein, if you rely on just one customer for an outsize percentage of your revenues, or if one product drives the vast majority of your sales, you could be at significant risk if a recession hits and people suddenly decide that what you provide is more “want” than “need.” Of course, diversifying your revenue stream is both the most obvious and difficult task on this list. That’s because it means doing things such as finding new customers, or developing new products and services. But you can be more specific about your tactics, such as intentionally honing in on new customers from different sectors and industries, which could feel the brunt of a recession in very different ways.

3. Hire With Agility in Mind: We’ve talked to you about when you should start hiring workers, but something you should keep in the back of your mind, especially if you’re focused on surviving a recession, is who those workers should be. While you ideally want workers who are specialized in doing what it is you need them to do, flexibility and the intelligence needed to pick up other tasks is vital when a company tries to navigate an economic recession. Your company may need to do more with less. You’ll certainly be forced into experimenting to find areas of growth when things that typically work aren’t as effective. Flexible, agile employees allow you to take the kinds of chances and make the on-the-fly changes you may need in a less-than-accommodating environment.

4. Get a Line of Credit: Small businesses have a difficult time finding financing at attractive terms in a good economy. So you can probably imagine what it’s like trying to get a line of credit when the economy is tanking and banks’ tolerance for risk circles the drain. Don’t wait until you need credit to gain access to it – use your current financial strength to your advantage to get a decent term. Specifically, look for creditors that will charge you only for what you use; you don’t want to bleed money just to keep your backup plan operational.

5. Pay Off Debts: Importantly, just because you have access to debt doesn’t mean you should use it. In fact, if you’re preparing for a recession, you want to lean in the other direction, paying off all the debt you can now. Less business debt now means less in interest payments later when just a few dollars could make or break you. But don’t just try to pay off business debt either – knock out your personal IOUs, too. Personal finances are one of the greatest sources of personal stress, and too much stress likely will affect your ability to be a clear-minded leader when the stakes are higher.

These are just a few of the places where you can start to make your small business more resilient. If you’re looking for more ideas, or need more detail on how to address the five tips above, talk to McManamon & Co. We offer a wide range of consulting services that including how to recession-proof your business – and much more, including how to steer your company to growth when the economy is booming.

Call McManamon & Co. at 440.892.9088 or contact us online to secure your small business’s foundation so you can survive the next recession and flourish in the next recovery.

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