How small businesses prepare for a possible recession

It’s pretty much anyone’s guess where this economy will go in 2023. It could hit a “soft landing,” it could slide into recession, or it could end up somewhere in between. Add in the uncertainty of whether another wave of COVID-19 is on the horizon and Russia’s war on Ukraine, and suddenly it can be very difficult for business owners to plan.

Optimism for small businesses fell in December, according to the National Federation of Independent Business. It found that more business owners were pessimistic about business conditions over the next six months due to higher costs, difficulty finding workers and overall economic uncertainty.

For Bright Star Early Care and Preschool in Washington, DC, how things play out in the coming year will largely depend on what happens in the job market. Owner Marcia St. Hilaire-Finn said if more people enter the workforce, more people will need childcare. But if people lose their jobs, the demand for childcare will fall. As a result, St. Hilaire-Finn said her strategy this year is to increase her cash reserves in case business slows down.

However, she said there aren’t many ways to cut costs. She can’t afford to fire employees, and her rent is non-negotiable. Instead, she is focusing on increasing her income by expanding to a new floor in the building.

“We are adding a third level to increase our capacity by 50%,” said St. Hilaire-Finn.

This will mean that Bright Star Early Care and Preschool will be able to accommodate 48 new children. St. Hilaire-Finn said her expenses will increase, but her income will increase even more.

“Childcare is a numbers game,” said St. Hilaire-Finn. “The more children you have in the same building, the more money you make.”

Expansion isn’t always easy when customers are nervous about the economy.

“January is usually a time for a lot of new business,” said Madeline Reeves, founder and CEO of Fearless Foundry, a consulting firm that helps other businesses with marketing, business strategy and design. “There are a lot of projects underway for our existing clients, which is great, but we’re definitely seeing some hesitation.”

Instead of trying to add new clients, Reeves said she intends to work more with existing ones.

“You just show up and say things like ‘oh, you know, we’ve noticed that your social media presence isn’t where you’d like it to be. Is that something we can help you with,’ Reeves said.

The idea is to help ensure that Reeves’ income continues to flow.

“Having that basic monthly recurring income means I can afford to keep the business going,” Reeves said. “Which puts me in a stable position if there is any economic crisis.”

Meanwhile, companies that sell goods continue to face supply chain issues.

“I still see things going slow in Europe, with my factories,” said Cathrine Reynolds, who handles imports for Palmetto Tile Distributors in South Carolina. “I still see some closures underway and slower production rates.”

Reynolds said many of the factories she buys tiles from keep announcing they will raise prices. As a result, she was trying new tactics.

“When I get notices of increases from my factory, I try to order deep,” Reynolds said. “So I have really healthy inventory, so that price increase, when it comes, doesn’t hit us nearly as fast or as hard.”

Keeping a healthy inventory right now also ensures the company can sell customers what they want, said Greg Warwick, CEO of equipment supplier TMB Baking, near San Francisco.

“Let’s say we’re talking about a spiral dough mixer, and the customer breaks down,” Warwick said. “[If] someone else says, ‘okay, you can have it in three to four months,’ and we can say, ‘okay, you have it in a week,’ then we’ll be the choice.”

Warwick said the company is also ramping up its marketing efforts to ensure customers know what it has in stock. That’s because sales, Warwick said, is what keeps the company alive.

“Sales are the key to any healthy business,” Warwick said. “We are not making any fundamental changes in our business. We’re just working on developing it.”

Meanwhile, Warwick said he is in contact with his bank, in case he needs to draw down his line of credit. That, he said, can help him pay for all that inventory.

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