During the Government imposed lockdowns in mid 2020, the American economy was technically in a recession, but after the lockdowns were lifted, the economy boomed back. Most small businesses weren’t prepared for these lockdowns. Most small businesses had little to no operational savings and couldn’t afford to pay staff, rent, and other necessities since no or very few sales were occurring. Thankfully the PPP and EIDL loans came through. But being prepared means not having to rely on the Government to help you.
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According to JP Morgan Chase, the median small business has only enough cash in the bank to last 27 days without additional funds. The number of days businesses can survive without bringing in any money varies widely among industries:
- Restaurants: 16 days
- Repair and maintenance: 18 days
- Retail: 19 days
- Construction: 20 days
- Personal services: 21 days
- Wholesalers: 23 days
- Metal and machinery: 28 days
- Health care services: 30 days
- High-tech manufacturing: 32 days
- Other professional services: 33 days
- High-tech services: 33 days
- Real estate: 47 days
From what was learned during the COVID-19 Micro-Recession, here are the top 3 ways to be prepared for a recession:
Grow Your War Chest
Just like it’s a good practice to have personal savings set aside for unforseen life events, the same should go for your business. A business cash reserve can be utilized if there is a disruption to your business cash flow.
Eliminate Wasteful Expenses
Developing savings is easier said than done, so one of the best ways to save money and to stay as lean as possible is to cut wasteful spending in the business. To cut the waste, you can analyze everything from the monthly subscription for a service you don’t use, to re-evaluating advertising dollars.
Have Access to Credit
The ability to borrow money when there is a business opportunity or crisis is a useful asset. This money can float the business or finance the opportunity for increased profits. The best financial tool would be a line of credit. Please give us a call to see how we can help make this happen for you, or apply online.
