How to prepare your business for a possible recession
The Federal Reserve increased interest rates by 0.75 percentage point on June 15, the third raise this year and the largest since 1994, to counter high inflation. But some critics worry that aggressive regulatory policies could push the U.S. economy into a recession.
“An effort to intentionally slow the economy certainly raises the likelihood of a recession either later this year or next year,” said Ben Johnston, chief operating officer at finance company Kapitus. “We continue to see small businesses struggle with inflationary tendencies.”
Unlike the pandemic-related recession, small businesses cannot rely on disaster loans and tax credit programs to survive this downturn. But there are some tools small businesses could use to stay in healthy financial shape.
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Is your business prepared for a possible recession?
Small businesses could buy raw materials in large quantities to receive volume discounts and secure supply, Johnston said. He added some small businesses have been buying materials with the intention of reselling in the future for profits, as prices could increase.
In addition to cutting material costs, business owners could also save money by reducing labor costs, like the type used within the hospitality industry.
“You'll see a lot of restaurants installing QR codes that allow customers to order remotely," Johnston said. "We’re seeing restaurants encourage customers to come in and pick up their own orders instead of needing to hire a larger delivery staff. We're seeing some restaurants adjusting their menus in order to find cheaper menu options.”
Customers also become more price conscious during high inflation periods, so businesses could adjust their product offerings to reflect changing customer demands.
For example, retailers could consider keeping more low-cost items in stock rather than high-cost brand-names. Manufacturers could reduce customization without changing functionality, because “customer tastes may be changing toward streamlined and functional over flashy and extravagance.”
What resources do small businesses have?
Despite difficult times, small businesses could make use of grants and loans from the government and the private sector.
For example:
The Small Business Administration could help small businesses get loans, and some of the funding comes with support to help you with running the business. These SBA-guaranteed loans could have lower down payments and more flexible overhead requirements.
The SBA also offers other programs, such as the Women-Owned Small Business Federal Contracting program and 8(a) Business Development program. You can explore more options here.
This article originally appeared on USA TODAY: How to prepare your business for a possible recession
