- While 81% of business owners expect a recession this year, 43% say they still expect revenue to increase over the next 12 months.
- Despite rising inflation, some business owners are resisting the urge to raise prices.
- Business owners should embrace some practical strategies to prepare for an economic downturn.
- This article is for small business owners who want to prepare their companies for a potential recession.
The U.S. economy had an incredible upswing over the last decade, but lately, small business owners’ outlooks are souring. Fears of a looming recession have been bubbling to the surface for some time, and experts are already expecting certain swaths of the population to be hit particularly hard this time around. See the latest polling and find out how to prepare your business for an economic downturn.
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Small business owners expecting a recession
Since small businesses are a major driver of the economy, a quarterly survey by CNBC and SurveyMonkey asks small business owners how they view the current economic landscape. The latest survey, conducted in April 2022, polled a national sample of more than 2,000 self-identified small business owners ages 18 and up.
While 81% of survey participants said they expect a recession this year, 43% still expect their revenues to grow over the next 12 months – two things that don’t typically go hand in hand. Considering that the U.S. Bureau of Labor Statistics says approximately 1.8 million small businesses closed between December 2008 and December 2010 as a result of the last recession, these findings should be particularly worrisome to American entrepreneurs and small business owners.
Among those polled by CNBC and SurveyMonkey, 44% rated the current economy as “poor,” and 38% cited rising inflation as one of their biggest concerns. That doesn’t necessarily mean business owners are rushing to raise prices – 35% of survey participants deemed it a “bad time” to do so. But businesses that don’t increase their prices to account for higher costs may not withstand a full-fledged recession.
A recession is defined as an economic decline marked by two consecutive quarters where the GDP decreases. Learn more in our article “What Is a Recession?”
How small businesses are – and aren’t – getting ready for the next recession
Though 46% of survey respondents described the current conditions of their business as “middling,” things could get a whole lot worse if the predicted recession happens. Perhaps as a result, 61% of business owners aren’t expecting their number of full-time staff members to increase in the next year. Dialing back on hiring is one way to keep expenses steady.
Some things, however, are out of business owners’ control. More than half of those surveyed said they expect both “changes in government regulation” and “changes in tax policy” to have a negative effect on their business. Meanwhile, a little less than half predicted “changes in trade policy” will negatively affect their company. As much as people try to recession-proof their business, there is little they can do about government policies. [Related article: Is Another Economic Crisis on the Horizon?]
Of those surveyed, 70% expect higher interest rates to have a negative effect on their businesses over the next six months. The study also found that while a whopping 75% of small businesses are dealing with a rising cost of supplies, 24% are absorbing those costs. That may not be the case for long. More than 30% of respondents said they plan to raise prices if costs continue to increase. All the while, more than half of businesses are struggling with supply chain disruptions.
Whether the economy is booming or busting, all business owners should have a firm understanding of gross domestic product – the total value of a country’s goods and services. Check out our GDP overview to see how it affects companies of all sizes.
Tips to prepare for a recession
If you’re among the 8 in 10 small business owners who expect a recession this year, you can and should do certain things to prepare your small business. Without adequate preparations, you may find your business in distressed circumstances. Here are five tips to help you get ready for what may lie ahead:
- Get your finances in order. Use the best accounting software, if you aren’t already, to stay on top of your profit and loss A business owner with a firm grasp of their financials will be more likely to notice the first signs of a recession’s financial impacts and be able to adjust accordingly. Use this accounting checklist to track your daily, weekly and monthly numbers.
- Stop hiring. Hiring qualified employees has been a serious challenge the past few years, but if you expect a recession to hit your business hard, consider taking down any job listings. This isn’t the time to stress your budget by hiring additional personnel. To conserve monetary resources, make do with the staff you have.
- Hoard cash. Cash is king in a recession. Determine how long your business can survive on its cash reserves. Follow the best cash flow strategies, and slow your spending to only cover necessities, even to the point of not paying yourself any more than you have to. [Looking for the best business loans? Check out our top picks and reviews.]
- Inventory your clients. Figure out which of your client accounts you might be able to grow and where you might find new business. Similarly, know which clients you’re likely to lose amidst a down economy so you can focus on keeping your most valuable customers.
- Adjust your offerings. A recession will affect your customers, too, so consider evolving your products or services to better serve clients as their circumstances change. A change in the economy could actually present an opportunity in the marketplace.
- Reduce overhead. If you’re tied into long-term leases or financing agreements, this may be hard to do, but if you can reduce your monthly fixed expenses without hurting your business, consider doing so.
- Brush up on economics. A business owner who doesn’t understand the basics of economics is less likely to survive fluctuations in the economy. By educating yourself on economic policies and how they should influence your business decisions, your company will be better positioned.
The bottom line on recessions and small businesses
Since CNBC and SurveyMonkey conduct their polling quarterly, the latest statistics could change – for better or worse – in the months ahead. Even if the next data set is slightly more optimistic, current economic indicators suggest business owners should embrace strategies that’ll prepare them for an economic turndown. For the long-term health of your business, now is the time to get your business on solid footing. With hard work and a lot of luck, you’ll be one of the companies to emerge on the other side.
Andrew Martins contributed to the writing and reporting in this article.