The Coming Recession

by AaronHoos

Date Submitted: 3/14/2008

Is your small business or ebusiness ready for the coming recession? Aaron Hoos shows you how you can strengthen your business' foundation to help you weather the economic storm.

Economies fluctuate. They experience waves of growth and decline. And businesses, like boats, ride those waves. When the economy is good, businesses prosper; when the economy is bad, businesses are at risk. Recent signs suggest that we’re facing an imminent recession. Will your business be at risk? In this article, we will look at the coming recession and outline 7 ways that you can reduce the risk to your small business.

In its simplest terms, a recession is a lack of money in the economy. When people hear that there could be a recession, they spend less. And guess what happens! Demand for goods drops. As a result, demand for manufacturing drops. Then, demand drops for employees to do the job. And because of the threat of job-loss, people spend less. It’s a vicious cycle; a self-fulfilling prophecy. The secret to ending a recession is to get people to spend. That’s why the Federal Reserve (and similar central banks in each country) increase and decrease interest rates: Lower interest rates lead to more loans and more spending. Higher interest rates lead to fewer loans and less spending.

A recession is merely part of the economic cycle. We may not like it, and the central banks are effective at minimizing its severity, but a recession is bound to happen. And because it is a self-fulfilling prophecy, the more we hear about job cuts and recessions and stock exchange losses, the more likely we are to put our money under the mattress instead of spending it... which is exactly what fuels a recession!

Increasingly, news reports indicate that a recession is imminent. Even if you choose to spend your money instead of bury it in the backyard, you can be sure that there are millions of other people out there right now who are digging holes in their lawn or tucking an envelope under their mattress or reworking their budget to exclude frivolous spending. So, we can be sure that a recession is coming. Is your small business ready for the recession?

Here are 7 ways that you can prepare your small business:

1. Rework your sales material: It’s time to dust off those brochures and breathe new life into your website. Each sales piece will need to work extra hard to generate the same amount of sales. That could mean freshening up the content, sharpening the pitch, or clarifying the benefits. This is one reason to welcome a recession: if your revived sales collateral can sell in a recession, chances are that it will sell even more effectively in a period of economic growth.

2. Reposition your offering: Remember that people avoid spending their money in recessions, unless they have to. And there are some recession-proof industries which sell products that people need, no matter what the economic condition. Food and shelter are two examples. But what if your small business serves a need outside of the most basic needs that people willingly spend on during a recession? What then? One option is to align your business with one of the necessary industries. For example, you could rewrite your website content to show the importance of your product or service right now; to demonstrate why your product is, in fact, a necessary industry. For example, if you sell car tires, you could show how tires are an excellent investment because they keep families safe and ensure that people get to their jobs on time.

3. Offer additional products and services: With fewer people buying, and with consumers needing a greater reason to buy, this might be a good time to test a handful of ancillary products. One example for e-businesses might be a free bonus ebook. Create 3 or 4 bonus ebooks and allow a customer to select one as a free gift. Keep track of which ones are selected most frequently. Then, when sales pick up again, be sure to include that ebook as a sale-inducing bonus all the time.

4. Explore partnering opportunities: When the economy is smoking hot, businesses don’t always have time to brainstorm ideas with other businesses. But if your small business is looking to stay afloat, there’s probably another one in a similar situation that would be willing to talk. To find that business, forget what you offer. Instead, think about who your customer is. Identify small businesses that market a different product or service to the same customer. Approach them and talk about doubling up on advertising or perhaps selling the other’s products on consignment.

5. Reach out to previous customers: Your happy customers are a resource to you. It’s easier to convince them to buy from you again and they act as evangelists for your business to their family and friends. Even if you don’t normally reach out to this group, consider changing your habit for the next few months. Create a promotional letter, ezine, or special website where you can thank them for their previous business, offer them another product at a discount, and encourage them (with an incentive) to send you more business.

6. Relax; it won’t last forever: The recessions experienced in North America in the past 50 years have all lasted, on average, about 12 months. Maybe a few months more, maybe a few months less, but generally about that amount of time. While those months can be devastating to some small businesses, it is unfortunate that many small businesses adopt the incorrect notion that the downturn will continue on indefinitely and they take drastic measures based on that line of thinking. However, economies are cyclical and they do move through recessions back into periods of growth. So businesses that tighten up moderately -- not drastically -- will weather the recession much more effectively and will be better positioned at the end of it.

7. Get ready for growth: During a recession, people buy less so companies are often more flexible and willing to make a deal. Think long-term and buy your raw materials and equipment in advance. As long as your negotiated bulk discount is more than the cost of storage, you’ll come out ahead because you’ll be able to produce finished products faster (and at an overall lower price) than your competition, once the market heats up again.

It would be great if the prediction of a recession turned out to be wrong and you didn’t need this information. It would be great if small business owners could adopt a "business-as-usual" approach without any worry that their customer-base might suddenly disappear in the coming months. But there’s a good chance that there will be a recession shortly. If you take action now, your business will be better prepared for it.