Running a Business In a Recession

It’s hard to believe that I wrote my last article on this topic about a year ago, but I guess recession fears were brewing even last March.  Now we already know that we’ve been experiencing a real recession for several months.  I have never owned a business in this type of economy, and I’m sure many business owners would say the same thing; so it’s a bit hard to know how to navigate through it.  I believe that, as always, careful planning and sensibility will get you through it, so here are some ideas:

Proper planning is crucial.  We’ve all heard about the importance of writing a business plan, and while many businesses thrive without one, now more than ever, planning is crucial.  I normally create a budget for my business each year, but this year I created three.  The first one is for a regular, non-recession year.  The second is identical to last year’s, in case it’s a flat year, and the third is a contingency budget, in case sales are down by as much as 30 percent.

I always want to make sure that I get paid first, so my goal with each budget is to ensure that I’d have enough to take home in all three cases, especially in the worst case.  Even with sales down 30%, my contingency budget allows for me to make almost as much as I did in a good year.  (This is accomplished by cutting other expenses of course.)

This is the time to slim down and run a lean ship.  Review all of your expenses and cut anything that isn’t needed.  Reevaluate your marketing plan. For the past few years, we’ve been doing trade shows – up to ten per year, but they have started becoming less effective.  Based on an educated “hunch” that sales would continue to decrease due to a continued drop in attendance, I decided to cut tradeshows from the budget completely – that’s over $15,000 in expenses which I will use towards hiring a sales person. 

We have a classified ad in a trade magazine that hasn’t been getting results – it’s not likely to do better this year – so I’ve decided to cut it.  I had to hire a new production person, who previously worked 25 hours a week.  I found that 20 hours was sufficient, so I placed an ad for 20 hours and cut some extra spending there as well.  Last year, I ate lunch out 3 or 4 times per week, now I bring lunch from home and eat out once a week.  All of these things add up.

Be careful not to cut too much, and make sure you cut in the right areas.  Marketing and advertising are needed now more than ever, so try to look for different, more creative forms of marketing.  Our search engine marketing efforts over the past two years have begun to pay off; now we get about 2 calls a day from prospects that have found us online, and we’ve already generated sales from those calls.  We’re launching some new side services and going back to our current clients – these are our best source for more business!

I’m also looking into buying a small book of business.  Since sales may be down, why not acquire another business?  It’s an automatic way of increasing your customer base, and as mentioned above, customers are your biggest asset!  They have already purchased from you, so why not go back to them and offer them other services?  You’re also more likely to get a good deal now, since many small business owners are hurting and looking to cash out.

With proper planning, you can hold on and make it through this tough time.  Rather than making deep cuts in every department, make them where appropriate, but keep on finding ways to generate business.  It will be tough, and slow, but if you can hold on, you’ll still be in the game to reap the rewards when the economy bounces back up.