Big businesses are hunkering down for what they believe is coming soon: a recession. According to a recent Conference Board survey, six out of 10 CEOs expect a recession to hit their operational sectors. However, large public entities have plenty of ways to stay afloat, such as the ability to liquidate stock or issue bonds. Small businesses don’t have the same resources, which means they have to be more innovative to survive the challenges of an economic downturn.
This isn’t to say that recession-proofing your small business is impossible; some can survive and even thrive in tough markets. If you want your business to be one of them, the first thing you need is a plan. And the best way to plan is to understand the potential pitfalls that you must avoid to get to the other side of a recession with your brand intact.
Common Effects of Recession on Small Businesses
As you consider how to prepare your business for a recession, you’ll no doubt start mulling over many of the challenges that can wear businesses thin when times get tough. The first, not surprisingly, is a reduction in sales due to decreased demand. Unless you sell an essential product or service, you can expect your revenue to go down during hard times. To compensate, you may decide to hold sales or offer discounts. Though these marketing tactics may work, they will lower your profit margins even if you stay out of the red.
The second and third effects of recession on small businesses are ripples from that lessening demand: a shrinking labor force and a decline in quality. After all, when you aren’t bringing in enough money, you may have to let people go. This may afford you some financial breathing room, but it forces your remaining team members to stretch themselves too thin. The result? The quality of your products or services begin to degrade.
A final concern facing small businesses during recessionary periods is a lack of budget money to put toward advertising. Many organizations automatically withdraw funds from their marketing campaigns when a recession hits. Unfortunately, this move — albeit understandable — can backfire significantly. As fewer people are introduced to the brand, fewer leads are driven into the sales funnel. Fewer leads at the top mean fewer customers at the bottom.
How Small Businesses Can Survive a Recession
With all the recession-related looming issues, it may seem extraordinary that any small business can make it through a year or two of economic uncertainty –– but they do. To do so, many leaders and entrepreneurs rely upon working capital loans.
Working capital loans for small businesses are enormously valuable tools used to keep cash on hand during a recession. Having access to finances gives companies a safety net and can reduce the potential impacts of dwindling sales and uneven demand.
With a working capital loan, your organization can continue growing and making bold decisions. This could include moving into a new market or keeping all your employees on the payroll to see if you can turn the corner. Nothing neutralizes the sting of cash-flow difficulties like being able to tap into funds from a low-interest loan.
So, how exactly can working capital loans save businesses during a recession?
1. Working capital loans can help avoid inventory scarcities.
No one wants to run out of vital stock, especially with all the recent supply chain snags. On the other hand, you don’t want to have too much on hand, just in case you can’t sell everything.
Working capital loans allow you to feel more comfortable buying what you need — and maybe a little extra. You may have to adjust your expectations, especially if your inventory turns slower than it did before the recession. However, being able to keep enough items (like raw materials, goods, or supplies) available reduces the chance of your company running out.
2. Working capital loans can boost your profit margins.
Profit margins can get tight when you’re not selling as much as you were or if you lower your prices to remain competitive. Since you likely can’t raise your prices during a recession, you need to find other ways to bring up your margins, such as paying less per lead by investing in more digital marketing.
The less you pay for every customer, the higher your overall margins will be. Once you have your customers, you can work on keeping their loyalty through engaging content and other interactions. A working capital loan will enable you to keep your brand in front of people in the best way, thereby making you more likely to win more sales.
3. Working capital loans can allow you to maintain, repair, or replace equipment.
Nothing is as stressful as having equipment, machinery, or critical technology break down while you’re trying to keep your head above water during a recession. Even if you only have to make repairs rather than replace an asset, you’ll still need money to make everything happen and get people back to work.
A working capital loan can be used to help you cover unexpected large expenses that just can’t wait. Whether you decide to lease or purchase newer or “new to you” items, you won’t have to use up all your savings or put a large amount on a credit card. You’ll just get the equipment you need so you can keep your operations going.
Despite possible storms ahead, the good news is that economic recessions never last forever. So, if you take planning seriously and make sure that you have the funding you need to get through tough times, you’ll be better positioned to weather the coming storm.
To learn more about working capital loans offered through PEAC Solutions, visit our site. Or, submit an application to get fast approval for a working capital loan for small business, or another of our exceptional financial solutions.
PEAC Solutions is a DBA of Marlin Leasing Corporation. Equipment financing is provided by Marlin Leasing Corporation. Working capital loans are originated by WebBank.