The U.S. economy has heard whispers about an impending recession for years. And although it hasn’t happened yet, a recession can be challenging for small business owners.
What exactly is a recession? It’s also known as an economic decline when trade and industrial activity are reduced. It’s generally officially identified by a fall in GDP for two consecutive quarters.
Recessions are inevitable, but that doesn’t mean small businesses have to suffer. By taking proactive steps, you can protect your business from a recession — no matter when it occurs.
When Will a Recession Occur?
For as much fear and chatter as there has been about recessions in recent years, most economists predict that the U.S. won’t experience a recession in 2025.
However, that’s not to say it will never happen. Historically, a recession occurs once every 6.5 years, and the U.S. has suffered through 12 recessions since the end of World War II. The last U.S. recession was in 2020, meaning we’re likely getting closer to another incident, but it likely won’t occur for a few years.
What’s in the forecast for 2025? Many economists predict slow GDP growth, but it is not severe or long-lasting enough to lead to a recession.
Industries That Suffer and Thrive in Recessions
Although recessions tend to be widespread and affect most businesses and consumers, not all the effects are negative. Some industries are hit especially hard during a recession, while others can thrive as people turn to new spending and financial habits. Even though some industries are at higher risk than others, plenty of resources and tools are available for small businesses, so you’re prepared during an economic downturn.
Industries hit hardest by recessions:
- Retail and hospitality
- Manufacturing
- Real estate
- Financial services
Industries that can thrive during a recession:
- Health care
- Utilities
- Cleaning products and sanitation services
- Baby products and services
- DIY and repairs
- Debt collection
How To Recession-Proof Your Business
Taking steps now to protect your business and secure its financial health can lead to great benefits, no matter when a recession occurs. Here are five ways to recession-proof your business. When’s the best time to start? Now, so you’re ready for wherever the economy goes.
- Cut unnecessary expenses. Even as your business grows, following a lean financial model is still beneficial. Unnecessary expenses can remove precious cash flow from your business without leading to significant returns. Examine your expenses to find areas you’re spending that aren’t necessary or that aren’t contributing to business growth. Is there a way to cut that cost entirely or find a less expensive option? Every improvement you can make to your expenses means more capital to protect your business.
- Reduce expensive debt. Similar to examining your spending, take time to evaluate your debt. Some debt is normal for small businesses, but loans with high interest rates can be costly, especially if you have the resources to pay it off. Look for ways to consolidate or eliminate debt, especially debt with high interest rates.
- Protect cash flow. Cash flow can decrease during a recession as consumers spend less, so do what you can now to create reliable cash flows. Stay on top of invoices and accounts payable and receivable. Establish a strong inventory management system so you can maximize sales without ordering new products and ensure your vendors and customers are reliable.
- Nurture existing customers. It pays to have loyal, returning customers. Bringing in a new customer is anywhere between 5 and 25 times more expensive than retaining a current customer. By nurturing existing customer relationships, you’re creating champions for your business who are more likely to refer you to family and friends. As a bonus, returning customers spend 67% more on average than new customers, so focusing on current relationships can create a strong base of loyal customers.
- Improve working capital. The general rule for small businesses is that the more working capital you have, the more likely your business will run smoothly. Depending on your type of business, you may need a significant amount of working capital to protect against economic troubles. Securing emergency funding with a Fundbox Line of Credit can help optimize cash flow and manage expenses.
Recessions are inevitable, but they don’t have to be scary. By protecting the financial health of your small business, you can build the resources and systems to withstand a rocky economy.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
