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Faced with swirling recession winds, many small business owners have already scaled down operations, but further pruning could also be needed to weather the looming economic storm.
US economic growth fell by 0.9% within the second quarter, the Bureau of Economic Analysis said on Thursday, the second straight quarter of negative GDP. This will increase concerns that the economy has entered a recession, although this is just not technically an accepted definition of this shift within the economic cycle. Fed Chairman Jerome Powell said on Wednesday that he didn’t think the economy would enter a recession.
Some small businesses are already pulling back based on signs of a slowdown. A report published Thursday by financial automation platform Ramp found that small business spending on electronics fell 59% between May and June. The report shows that many small businesses spent 28% less on shipping, 14% less on promoting and 11% on SaaS and software purchases over the identical period.
“I counsel my clients and social media followers to phase out all unnecessary spending to see what the economy brings within the second half,” said Brian Moran, CEO of Small Business Edge, which provides small business guidance.
Finding ways to trim fat without cutting into the corporate’s meat is a challenge for many homeowners. Here are three suggestions for surviving the recession.
Owners don’t at all times know exactly what they’re spending their money on, so the primary task is to do a self-check. Use the last three bank statements and bank card statements to discover areas where you may make small but significant cuts, said Carissa Reiniger, founder and chief executive of Silver Lining, which advises and lends to small businesses.
For example, your organization can have subscriptions to magazines, apps, software, or networking groups which are unused or underutilized. These costs can really add up, especially should you’re paying per person. Also take a look at other recurring expenses, including telephone services, utilities and checking account fees, to see where you may reduce or eliminate some costs, she said.
“I believe the common small business could cut their expenses by 20% without feeling a twinge,” Reiniger said. Don’t be afraid to barter. Especially in turbulent economic times, she said, small businesses have more negotiating power.
David Quinn, CFO of banking fintech Bluevine, said small businesses also needs to negotiate with suppliers. During such discussions, consider whether there may be anything you may offer your supplier that others cannot. Also take into consideration whether there may be a deal you may make that can help each parties, he said. He said some suppliers might not be willing to deal, but in that case there could also be other options to cut back costs, akin to discounts on bulk purchases.
Limiting your initial expenses can be a prudent move. Peter Shieh, a senior asset advisor at Citi Global Wealth, has a client within the industrial lighting industry who can have held six to nine months of inventory, akin to light bulbs and electrical cords, prior to now. Now the shopper orders up to a few months prematurely. The client also negotiated with suppliers to dam rates for certain products. “With inflation, prices could go up 20% to 30% in three months, in order that’s one other thing they’re considering and planning for,” Shieh said.
One cash-saving tactic is likely to be to pay your bills closer to their due date than 15 or 20 days prematurely, or ask for an extended payment period, say 60 to 90 days as a substitute of 30 days.
Also take a look at real estate costs, said Matt Armanino, chief executive and managing partner of Armanino LLP, an independent accounting and business consulting firm. If your lease ends soon, consider whether you really want the space you occupy given the trend towards hybrid or distant working. Or, whether it is a long-term lease, is it possible to sublease a part of the space?
For most small businesses, employee-related costs are a serious expense, so that is a straightforward place to attempt to cut costs. Don’t jump from the gun. The cost of hiring and retaining talent is especially high at once, so firing people unless you actually must may be “smart and silly,” Armanino said.
If you’ve got tried other avenues and still must cut costs, consider shedding employees as a substitute of firing them immediately, said Joshua Oberndorf, an accountant at EisnerAmper. Tell them how helpful they’re to your organization and the way you plan to bring them back as soon as possible, he said.
You may also consider taking out a small business line of credit that you would be able to use as a short-term bridge, Shieh said. With this feature, a small business can expect an APR of between 7% and 25% on average, in accordance with NerdWallet’s Fundera. While rates at the moment are higher than, say, six months ago, it’s good to have a lifeline to access when needed, he said. There are other small business financing options as well, including family and friends, online lenders or funders, and SBA loans.
See what parts of your small business may be automated or digitized. Maybe, for instance, you may implement a chatbot to cut back customer support costs or switch to online training as a substitute of onsite. For example, Armanino did the latter, and the move paid off inside just a few quarters.
Sometimes you’ve to spend some money upfront to attain long-term savings, he said. That’s true even in a downturn, especially if the cash you are spending elsewhere may be redeployed for those purposes, he said.
Many small businesses are tempted to stop marketing during an economic downturn. Don’t fall into this trap. Consider a study by McGraw-Hill Research that analyzed 600 firms between 1980 and 1985. The results showed that firms that had kept their marketing spending going through two years of recession saw a big increase in sales. And by 1985, those who advertised aggressively in the course of the recession had significantly higher sales than those who allowed promoting to recede into the background.
“You don’t desire to interrupt communication with customers; is your future revenue,” Oberndorf said.