Last editedOct 20223 min read
Forecasters like the National Institute of Economic and Social Research (NIESR) have outlined the potential for a UK recession in the months ahead. As economic growth stalls and consumer confidence shrinks, how can small businesses keep afloat? While these can be uncertain times, it’s also possible to look at small business recession as an opportunity. Find out how in this small business recession survival guide.
Effects of recession on small business
Within the UK, a recession is defined as a period of negative growth spanning two consecutive economic quarters. This includes a fall in both national output and income at least six months, leading to symptoms such as higher unemployment and decreased consumer spending. When consumers are struggling to pay their required bills, they have less disposable income to spend on less-necessary products and services. Retail sales plummet, and unless a small business has funds in savings to weather the storm, they can find it difficult to survive. One of the issues is that the duration of a recession can be unpredictable. Some may last for two quarters, while others can go on for well over a year.
Do recession proof businesses exist?
Some businesses fare better than others during times of economic recession. While consumers may be less likely to spend money on luxurious extras, they will still need to pay for certain services and products no matter what the economy is doing. Examples of recession proof businesses include those that sell items like household essentials, food, and healthcare. Consumers may be less likely to purchase a new car, but they will still need to repair their existing ones. They may not purchase new electronics, but they’ll pay for the utilities that power their existing computers and TVs.
Treating small business recession as an opportunity
Small business recession can become an opportunity for growth if you find a way to make your products or services essential to consumers. This might mean pivoting from producing a wide range of different products to focusing all your efforts on one important service. While small businesses must always think of ways to outpace the competition, this is more important than ever during a recession. How can you make your product stand out? How can you make it address your customers’ needs? Reassess existing pain points to find new, innovative solutions – or pare down your offering to minimise costs while selling a tried-and-trusted product.
Tips for recession proofing small business
Sometimes there’s a clear indication of an incoming recession, but this isn’t always the case. An unforeseen global event, such as the Covid-19 pandemic, can catch businesses off guard. Plan with consistent risk assessments, budgeting, and saving for an emergency fund. Ideally, you should always have enough cash to cover six months of essential costs. Here are a few additional tips for recession proofing small businesses.
Reduce operating costs: Are there ways that you can reduce costs for the short term? This might mean temporarily cutting employee hours as well as creating a tight budget for materials and repairs. Automating your payments process with GoCardless can also reduce costs, saving you time and money on costly admin.
Minimise failed payments: Chasing up on late or failed payments is another costly endeavour, with serious impact on your business’s cash flow during a recession. GoCardless collects over 97% of payments the first time around, with our Success+ intelligent retry tool collecting the majority of those that fail. This means that you don’t have to add bad debt and outstanding receivables to your list of woes.
Reduce customer churn: It costs more to acquire a new customer than to retain your existing ones. Reducing customer churn is more important than ever during a recession, when you’re really relying on your existing customer relationships. Find ways to show your appreciation, whether it’s loyalty programs or improved communication.
Improve cash flow: Create a cash flow forecast to keep a close eye on your cash inflows and outflows. The last thing you need is to run out of cash to pay your essential expenses. Similarly, keep on top of liquidity to improve cash flow. What are your sources of capital and how quickly can you liquidate your assets to access emergency cash?
The bottom line: preparing your small business for a recession
Surviving a recession takes advance planning and savvy forecasting, but it can be done. You can start planning now by not only finding ways to make your products and services more essential to customers, but also improving your cash reserves. Develop a plan of action using detailed risk assessment and scenario planning, all while strengthening relationships with your existing customer base. That way, when disaster strikes, you won’t be caught unaware.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.