25 Mar 7 Steps to Recession Proof Your Craft Business
by Sandi Rosner for Stitchcraft Marketing
What goes up must come down.
The United States is in the 129th month of the longest period of economic expansion on record. Economists have been warning us that a recession is inevitable. Whether it will be caused by changes in trade policy, a precipitous drop in oil prices, the socio-economic impacts of the coronavirus pandemic, or normal market corrections, every business owner needs to be prepared. It’s not a question of if a recession will occur, it’s a question of when.
What is a recession?
A recession is formally defined as two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP). The National Bureau of Economic Research uses a more holistic definition. They define recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”.
Recessions are a normal part of the business cycle. While the severity and duration of recessions varies, they generally bring a rash of business (and sometimes bank) failures, falling business productivity, and higher unemployment. Consumer spending falls, and access to credit becomes more difficult.
In this article, we’ll outline 7 steps you can take now to prepare your business to survive, and perhaps even thrive, during the next recession.
#1 Reduce expenses where you can
When times are good, it can be easy to blur the line between essentials and little luxuries. Take a close look at where your money is going. Know which expenses directly contribute to driving revenue and which do not.
Your biggest expenses are probably rent and salaries. Are you paying for more space than you actually need? Could you run your business out of less expensive premises, share space with another business, or even work from home? Reducing staff is always painful, but consider this: if your business fails, you won’t be employing anybody.
Small amounts add up. Nobody wants to scrub the toilets, but could you discontinue the janitorial service if you had to? Can you source less expensive packaging?
When you spot small indulgences that are eating away at your revenue, cancel them. Don’t wait. You have better ways to use that money.
Leanne Pressly, CEO of Stitchcraft Marketing recently interviewed NYT Bestselling author of PROFIT FIRST, Michael Michalowicz. His episode #61 had some excellent tips on how to reduce expenses in your business.
#2 Pay down your debt
If you’re currently carrying any business debt, pay it off as soon as you reasonably can. Don’t take on new debt unless you absolutely have to. You don’t want those obligations hanging over your head when revenues begin to fall. If you’re maxed out on debt when the recession hits, you’ll have little to no access to additional credit and you’ll be at high risk for a business failure.
#3 Line up access to additional capital now
If your business is on solid ground, now is the time to negotiate a new line of credit. You’ll get more favorable terms if you make arrangements while you’re in good shape, and you’ll have the flexibility you need when times get tough.
Regardless of your business situation, actively build a relationship with your banker. The bank does not win if you go out of business. Open up an honest line of communication with your banker now, so you’ll have a foundation to build on if you need help down the line.
#4 Build up your cash reserves
Use the money you’ve saved by reducing expenses to fortify your emergency fund. Just like you would for your personal finances, you should aim to have cash on hand to cover at least three to six months’ worth of business expenses. Set this money aside in a separate account so you won’t be tempted to dip into it for daily cash flow needs.
#5 Diversify your supply lines
Who do you depend on for the materials, supplies and inventory vital to your business? Take the time to identify alternative sources for essential products and establish relationships with those new vendors. If one of your key suppliers fails during a recession, or if production is disrupted by the coronavirus pandemic, you’ll be able to continue operations without missing a beat.
#6 Diversify your sources of revenue
Recession tends to spread from business to business. It could affect any of your customers before it does you, and their problems can quickly become your problems. If your largest customer or client went out of business, or stopped buying, would your business be “collateral damage”? If more than 10% of your revenue comes from a single customer, don’t get too comfortable. Actively seek out new customers so you won’t be at the mercy of someone else’s bad luck or bad decisions.
If you extend credit, keep a close eye on your receivables. Late payments may be the first sign that a customer is struggling. Reach out to those customers to see if you can work out a plan to help them get caught up while limiting your exposure.
#7 Never stop marketing
You might be tempted to cut back on marketing to save costs, but that usually does more harm than good. When the recession hits, you’ll need to keep revenue coming in the door. You can’t grow your business if no one knows about you. Just counting on current customers and clients is risky, since you can’t predict how a recession will affect them.
When a recession hits, customers will be searching for ways to get the most value for their dollar. At the same time, their old suppliers may be struggling, or even going out of business. This creates opportunities for businesses that are ready and able to step into the breach.
If you aren’t already tracking ROI on your marketing efforts, start now. That way you’ll have the information you need to double down on those marketing activities that yield the best results. Keep your focus on the strategies that directly contribute to driving revenue. A solid social media campaign, targeted email marketing, and optimization of your website are all relatively inexpensive ways to make sure you stay top of mind for your current and potential customers.
Stitchcraft Marketing has the experience to help you create and implement a marketing plan that will serve you well no matter what the economy brings.
Contact email@example.com to find out how we can help.