The Best Ways SMEs Can Deal With A Recession

5 minute read

written by Cápita Works

Aug 22, 2022

It's no surprise the pandemic took a big hit on the economy, and even though it was reactivating post-pandemic, many economies worldwide are struggling to get out of this slump. And trying to get rising inflation under control may trigger a recession. 72% of economists expect the next US recession to begin by the middle of next year, according to a poll by the NABE.

Small and Medium Enterprises (SMEs) are not immune to this downturn. Many SMEs can struggle more during recessions than larger companies because they have less financial reserves and limited access to capital markets. Because most SME businesses operate on a tight budget with little room for error, it can leave them feeling like there is no way out of this hole. But that does not mean you should give up just yet.

Keeping a positive attitude, focusing on your strengths, and investing wisely during a recession can go a long way. Especially in helping you manage the effects of the recession as an SME owner so that you do not go bankrupt or sell your business at a loss when things improve later.

Follow these strategies when preparing for a recession.

Stay lean and mean

The first step to surviving a recession as an SME is to get yourself into a state of financial clarity. Financial clarity will help you understand where you stand financially and how you can navigate your business through this challenging period.   

Before the economy went downhill, you should have put together a plan for your business, including a cash flow forecast. If you did not do this, now is the time to start. Remember that you must be lean and mean and oversee your expenses.

Look for ways to cut costs and increase your cash flow by optimizing your expenses. Look at your current credit agreements and see if you have the right coverages. If they are too high, think about reducing them without hurting your business.

Diversify your revenue streams   

Another way to help you get through a recession is to diversify your revenue streams. In other words, you can try to bring in more money from different sources, reducing your dependence on a single revenue stream.

For example, suppose your business currently makes most of its money selling to retail customers. In that case, you can try to diversify your revenue streams by offering services to other companies and selling your products to wholesalers and distributors instead.

You can also try to expand your product line or find new niches to sell your products and services. Developing product lines will not only help you diversify your revenue streams, but it can also help you to find new and profitable areas of your business.

Optimize your marketing efforts

At the start of a recession, companies tend to invest less in marketing activities. However, as the recession continues, businesses will need to find new ways to drive revenue, increase their customer base and reduce costs. It is wise to maintain marketing efforts and brand visibility in a digital world.   

To help businesses do this, marketers must get creative and make better use of the limited funds they have at their disposal. When it comes to marketing, you can focus on areas that provide the most value for your business, such as building a brand, driving traffic to your website, increasing your online visibility, and investing in content marketing. These marketing channels, when done correctly, can significantly reduce your costs and provide a good return on investment. You can read also read our article on The Importance of Digital Marketing for SMEs to learn more. 

Focus on critical areas that provide value for your business

As an SME, you have a limited budget and resources at your disposal. That said, you must choose to focus your efforts on the areas of your business that provide the most value for your business. Added value could be anything from marketing to product development.

It would be best if you also tried to invest in areas that will help you to get ahead of your competition. In addition, you can focus on areas that will help you reduce costs and make your business more efficient, such as improving your supply chain, automating certain parts of your business, or saving up on talent without sacrificing quality.  

Bottom Line

A recession is never an easy time, but it can be an excellent opportunity to refocus your business, improve efficiencies, and strengthen your company. If you are an SME owner, these are essential steps to ensure your business survives this challenging period and can continue to grow once the economy begins to improve.   

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