Economic recessions come with various economic uncertainties that pose significant challenges for small businesses, from threatening revenue streams to profitability and even survival. According to the statistics by the Bureau of Labor, about 20% of small businesses fail within their first year, and this number can be higher during a recession due to the threatening economic challenges.
However, with the right strategies, small businesses can navigate these turbulent times effectively and emerge stronger. Below are ten actionable tips for small businesses to survive during recessions.
What is a Recession
According to the NBER, a recession is defined as a widespread decline in economic activity that lasts more than a few months and exhibits a visible decline in real income, gross domestic product (GDP), employment, wholesale retail sales and industrial production.
Also, a recession can be seen as two consecutive quarters of negative GDP growth, characterized by reduced consumer and business spending, rising unemployment rates, declining industrial production, and weakened investor confidence. During a recession, businesses often experience lower revenues and profitability, and if not managed properly, can adversely affect the business. It is important to understand that recessions are a natural part of the economic cycle. So it is important to plan for it.
For instance, Nigeria entered a recession in 2020 after its GDP contracted for two consecutive quarters. The recession was caused by a combination of factors, including the COVID-19 pandemic, low oil prices, and a contraction in the oil sector. Additionally, it experienced its worst economic crisis in a generation in 2024, characterized by rising inflation and a volatile exchange rate, which has left many businesses struggling to survive and thrive. However, your business can survive and thrive in such periods.
What are Tips for Small Businesses to Survive During Recessions
Here are the top ten tips small businesses can implement to be recession-proof and thrive in hard economic times.
1. Adopt a Lean Operating Model
During a recession, one of the most critical steps for small businesses to maintain their financial health is to reduce their expenses. Start by analyzing your operating costs in detail and identifying areas where you can cut back without sacrificing quality. For example, consider moving to a smaller office space, negotiating lower rent, or transitioning to a remote or hybrid work setup to save on utilities and overheads.
Additionally, you can renegotiate contracts with vendors to secure better terms or check out vendors with better deals. In this period, prioritize spending on essentials and delay or eliminate discretionary expenditures. The advantage of a lean operating model is that it not only helps conserve resources during tough times but also creates a more agile and efficient organization.
2. Strengthen Cash Flow Management
Cash flow is the lifeblood of any business, and it is important that you maintain a healthy cash flow during the recession to avoid having cash flow issues, which might affect the business liquidity to cover operational costs and unforeseen expenses, and this might be dangerous for the business.
To strengthen your cash flow during the recession, one of the things to do is to closely monitor your income and expenses using cash flow forecasting tools. Delay non-essential expenditures and avoid committing to large investments unless necessary. Also, establish clear payment terms and follow up promptly on overdue invoices.
3. Diversify Revenue Streams
Relying on a single revenue source can be risky, especially during a recession. One of the most effective ways for small businesses to survive during a recession is to diversify their revenue streams.
You can diversify your income by exploring new markets, introducing complementary products or services, or catering to different customer segments. For instance, if you run a physical retail store, you can launch an online store to reach a broader audience.
A major trick to help you diversify your revenue stream is to assess your existing capabilities and look for opportunities to repurpose them. If you run a restaurant, you can add meal delivery services, or as a consulting firm, you can start offering online courses.
The advantage of diversification is that it not only stabilizes revenue but also opens up new growth opportunities.
4. Focus on Customer Retention
Acquiring new customers can be costlier during a recession, so your focus should be on retaining the ones you already have. This is a strategy that you should begin now; you don’t have to wait till the recession or when the economy is hard, and you will start trying to retain your customers.
Major strategies to retain customers include building strong relationships by providing exceptional customer service and personalized communication. Show appreciation for their loyalty through rewards programs, exclusive discounts, or surprise incentives.
Understanding your customers’ changing needs can help you offer relevant products and services, and this helps to ensure they continue to choose your business, which is super beneficial during the recession. Also, loyal customers can become advocates, recommending your business to others.
5. Leverage Technology for Efficiency
Technology can help small businesses reduce costs and improve productivity, which will save costs and help them survive better during the recession. Small businesses can cut down labor costs by automating repetitive tasks such as inventory management, payroll processing, and customer communications. Tools like email marketing platforms, customer relationship management (CRM) software, and accounting software can streamline operations.
For small businesses that will transcend to remote or hybrid work mode during the recession, leverage on technology is important to ensure smooth flow of information, efficient performance of work duties and efficient monitoring.
6. Revisit Your Business Model
Another puttee strategy for small businesses to survive during a recession is to revisit the viability of their current business model. Evaluate your pricing strategies, cost structure, and target markets. Are there areas where you can pivot to better align with recessionary conditions?
For example, consider adjusting pricing to offer more budget-friendly options or introduce subscription plans. However, you have to be cautious during this process to avoid it significantly affecting the business profitability. Adapting your business model to the current realities helps your business to remain relevant and resilient.
7. Develop a Contingency Plan
A well-thought-out contingency plan can make the difference between surviving and thriving during a recession. To start a contingency plan, first, identify potential risks affect specifically affect your business, such as supply chain disruptions, reduced demand, or workforce challenges. Then, outline actionable steps to address each risk. Also, it is recommended you set aside an emergency fund to cover unexpected expenses and establish credit lines to provide additional liquidity if needed.
8. Avoid Debt
Avoiding Debt during a recession is crucial for small business to maintain financial stability during recession. During the recession, loans usually come with high interest, and it is not a wise decision to access such loans unless they become necessary. Instead of relying on credit, build an emergency fund to cover unexpected costs and plan for contingencies. This helps you remain financially resilient and better equipped to weather economic uncertainties.
9. Build Strategic Partnerships
Collaboration is a powerful strategy that helps small business to survive during a recession. Partner with other small businesses or community organizations to share resources, reduce costs, and increase visibility. For example, if you own a bakery, you can collaborate with a coffee shop to offer bundled deals, or as a local gym, you can partner with wellness providers to cross-promote services.
10. Make and Operate Within a Budget
Creating and adhering to a budget is another effective way for businesses to manage finances during tough economic times. A budget helps you prioritize essential expenses, allocate resources efficiently, and avoid overspending. Also, you have to adopt the right budgeting techniques to keep your budget reliable and valid. By setting clear financial goals and tracking income and expenses, you can identify areas to cut back and maximize savings.
Final Words
Economic recessions present challenges, but with the right strategies, your business can survive and thrive. If you are in need of expert guidance, you can contact Mac Adebowale Professional Services. Our experienced team specializes in creating resilient business strategies for small businesses to thrive at all times. You can contact us at emails@macadebowale.com or macadebowaleadvisory@gmail.com.
