Starting Up in Slow Times: How to Prepare for a Recession

Latest posts by Charlie Fletcher (see all)

Running a new startup business is no easy feat and comes with lots of risks. Even after the money comes rolling in from your investment pitches, there are still many hurdles to jump and roadblocks to get around. It can take years for a startup to settle into its groove and earn a profit.

Still, for all the banes of starting a new business, there can also be a lot of joy and satisfaction. And while you’ve most likely considered these risks and determined your startup to still be a worthwhile endeavor, there are other risks and threats you might not have factored into the situation.

In today’s volatile economy, there are additional risks that are necessary to keep in mind to avoid potential disasters down the road. Despite the pandemic coming to what seems like an end and businesses starting to pick back up, there are still concerns of a looming downturn.

Financial experts are certain that the US economy will soon face another recession, which could spell disaster for any new startups still trying to get on their feet and turn a profit. And even those that are currently successful could still be at risk. Startups often teater on the edge between doing well and going under—and even if they are leaning more towards the former, one wrong move can set them on a path to failure.

If a recession occurs, how well your startup fares will depend on the steps you take now to prepare your business.

What is a recession and how does it affect startups?

In simplest terms, a recession is a significant decline in economic activity. This decline can be widespread, or it can be designated to a specific region and typically lasts for more than a few months.

Specifically, recessions are seen in industrial production, wholesale and retail trade, real income and employment. And while there are always fluctuations and occasional slowdowns in these areas, when there is a decline in performance for a period of time lasting more than a few months, it’s identified as a recession.

Though recessions are a normal part of an economy, they are often characterized by a wave of business failures, bank failures and spikes in unemployment. And though the effects of a recession are temporary and things do eventually pick back up, some businesses are impacted more than others.

Small businesses and startups, for example, are often dealt the heaviest blows during a recession due to limited capital and funding. A startup doesn’t always have the flexibility to take such a big hit in production and sales, and as such, can quickly go under and potentially never resurface after a recession.


Keep Navigating Through the Rapids: 5 Tips for Surviving a Recession

Tips to prepare your new business for a potential recession

As a startup owner, you cannot control the occurrence of a recession, but you can take preventative measures to protect your company and your employees and mitigate damage. While there is still no guarantee that your business won’t be significantly impacted, the tips below can help you better prepare, which can increase your chances of keeping your startup afloat in slow times.

Establish strong business and vendor relationships

When times get hard, and your supply chain slows down or runs into issues, it’s crucial to have good relationships with your vendors and others you do business with, such as stakeholders and creditors. Even when you aren’t facing a recession, solid business and vendor relationships are a crucial part of growing a successful business.

So it’s important to keep the lines of communication open and maintain strong relationships in case of disaster strikes. Quality business partners and vendors you can rely on will be key to helping you get through a recession.

Prioritize customer service

Your customer and client relationships are also essential. Customers are like the foundation of any business; Without them, you wouldn’t turn a profit. So when you face a potential recession, it’s important to have a solid, loyal customer base that will continue to support your business even when things get slow and money is tight.

Before a recession even hits, delivering consistent and excellent customer experiences is key. The better your customer service is, the more satisfied your customers will be and the more connected they will feel to your brand. And those solid customer relationships can help you continue making sales should a recession hit.

Improve inventory and supply chain management

Supply chain issues are almost always unavoidable during a recession. So the better your inventory and supply chain is managed now, the fewer problems you will face if a recession hits.

When things get slow, it will be invaluable to have a well-organized inventory and supply chain process that is prepared for potential backups. This means having backup sources of inventory, a well-organized process that is easy for a reduced workforce to still manage, and quality e-commerce solutions to drive automation.

Diversify your products and services

Businesses that have more than just one product or service to offer are more likely to stay afloat during a recession than those that don’t. So if your startup has limited offerings, now might be a good time to consider branching out and expanding what you have available. The more options customers have, the more sales you are likely to make, even when things get slow.

Protect cash flow

Being frugal with your cash flow can also help ensure you have funds to spare should sales slow down. As a startup, you should already be mindful of your spending habits and keeping an eye on cash reserves, but this is even more important as we face a potential recession.

The more you can build up your reserves now and learn to operate on minimal cash flow, the better you will handle a slowdown when it comes. So take the time to carefully review your cash flow and business costs now, if you haven’t already, to see where you can potentially improve and cut spending.

Reduce overhead costs with a smaller, remote workforce

In regards to cash flow, a great way to reduce expenses is to utilize a smaller, reduced workforce that operates remotely. One of the most significant costs of any business is maintaining an office and the employees in it. So if you switch to a home-based business or even a hybrid work option, it can help you save money.

You don’t have to necessarily reduce your workforce now, but getting them set up to work from home is something that can help if you do it ahead of time instead of waiting until you’re already low on cash. You can also offer your remote employees money-saving tips for how to reduce their own spending when working from home, which can potentially further reduce the cost of keeping them on board.

Secure sensitive data

Because people can get desperate during times of recession, cyber threats tend to increase, putting your company at further risk than it already is from the slowdown. So before a recession hits, it’s crucial to take extra precautions to protect sensitive data.

With everything and everyone going digital, computer and cell phone use puts companies at greater risk than they used to. This means upping your cybersecurity and cell phone use protocols is a must, even without the threat of a recession looming.

Conclusion

The above tips are something every startup owner should keep in mind, even when the economy is stable. A recession is not the only thing that can threaten your business, so the more prepared you are to face any potential threats or challenges overall, the more likely you will be to come out on the other side without suffering from any significant damage or setbacks.


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