Small business owners have weathered the Covid-19 pandemic, they’re currently navigating record inflation, and now they’re thinking about the potential of a recession. By understanding the possible effects an economic downturn may have on your company, you’ll be better prepared to withstand the next recession.

Most Common Impact on Businesses

Cash flow. More specifically, reduced cash flow. Unlike larger corporations, small businesses have less access to cash resources, so savvy cash flow management is a crucial aspect of enduring an economic downturn.

During a recession, businesses can expect that customers will be dealing with their own personal cash restraints and may delay payments longer than usual. Given that small businesses are more likely to expend money as it is received — on payroll, new equipment, or updated software, to name a few examples — the timeliness of customer payments is vital in sustaining small business operations. When customers fall behind on payments, the result can have a domino effect where small businesses are forced to make late payments to vendors or manufacturers, which in turn slows down all aspects of business operations. To make matters more challenging, financing opportunities dwindle during a recession, so business owners typically can’t just borrow their way out of a bad economy.

In order to invoice customers, however, a business first needs to make the sale, and a universal experience for small businesses during a recession is a decline in sales. Going back to the financial restraint customers are experiencing, they are likely prioritizing essentials and tightening their belts elsewhere. This has a direct effect on small business revenue.

Marketing

Reduced sales and reduced revenue trickle down to other areas of business operations, including marketing opportunities. Marketing is usually one of the first expenses on the chopping block during an economic downturn, especially for small businesses. However, without marketing efforts, the potential to attract new clients diminishes. And businesses are going to need new clients to offset the client loss they may be feeling. Resourceful small businesses have found success by implementing innovative and cost-effective strategies like social media campaigns.

Employee Cutbacks

If a small business is experiencing a financial shortage thanks to loss of business and revenue, budget cuts typically aren’t far behind. This can result in staff reduction, which means the company now has fewer workers to do the work. When it’s all-hands-on-deck to deal with current projects, there’s no focus on business growth and new client acquisition, especially if a slimmed-down staff become overworked.

Ultimately, being aware of the ways in which a recession can impact your small business will allow you to prepare in ways that can help your business remain adaptable and competitive.