3 Secrets to Weathering a ‘Silent Recession’
“When I read the news, it says we’re not in a recession but meanwhile my revenue is down by 30%, and clients are super slow to say yes and even slower to pay.”
Many heads nodded when a small business owner shared this at a recent “State of the Economy for Small Business Owners” roundtable (hosted by women’s work space and community, Luminary). 80% of the women present named cash flow as their biggest challenge right now. Even though broader trends like low unemployment rates may indicate economic growth, individuals and small businesses are feeling the effects of what some experts are calling a “silent recession.”
Rising inflation, a recent wave of regional bank failures, and high interest rates are creating head wind for everyone, and specifically for small business owners. Attracting and retaining talent has become harder since the pandemic, which creates additional challenges to growth.
Here are three “secret tips” that women who have built seven and eight figure businesses use to maintain and grow their businesses:
1. Conserve Cash
During economic uncertainty conserving cash is key. Consider doing one or several of these things to shore up your cash reserves.
Extend payables window: Consider extending the time frame in which you pay your bills, suppliers, and vendors. Negotiate terms that allow you to defer payments without incurring penalties. This approach can free up your cash flow and provide you with more working capital.
Shorten receivables: On the flip side, aim to accelerate your receivables by encouraging clients or customers to pay promptly. Offer incentives for early payments, such as discounts or other benefits. Timely payments from your customers can help cover your immediate expenses.
For B2B businesses, securing deposits or partial upfront payments from clients can significantly bolster your cash flow. These funds can be vital in meeting operational costs and sustaining your business.
For B2C businesses, consider collecting payments in advance for your products or services. You can also try improving your sales technique: consider gettings sales training to sharpen your skills.
Balance Cost-Saving and Growth: While conserving cash is crucial during a recession, it should not deter you from pursuing growth opportunities. Simultaneously, focus on a growth strategy and develop a roadmap to scale your business when economic conditions improve.
2. Establish a Business Line of Credit
Many small business owners turn to a line of credit to weather a temporary decline in sales / revenue. However, securing a line of credit can be lengthy and intimidating: the approval process has become more stringent and interest rates continue to increase. Lenders have become more cautious and selective in approving loans, making it harder for businesses to access much-needed funds.
Compared to men, women are less likely to apply for loans due to a fear of not qualifying, as well as anxiety around carrying debt. The fears are not unfounded. According to studies, women are 3X less likely than men to get a business loan. While the idea of convincing a loan officer and then carrying debt can be unsettling, it’s not necessarily a bad thing. Having capital can also be what allows your business to grow. If you’re struggling with where to start when applying for a small business loan, here are some tips to help you increase your chances of being approved:
Be Persistent: If you are denied a loan or line of credit, it doesn’t mean you should give up. Continue exploring different lenders and financial institutions. Sometimes, a "no" from one lender can lead to a "yes" from another.
Showcase Future Prospects: When applying for a business loan, present a clear picture of your potential customers and upcoming events. Demonstrating a well-thought-out business plan with a pipeline of prospective clients or participation in trade shows can instill confidence in lenders about the future of your business.
Highlight Your Product: If you have a tangible product, bring it to meetings with potential lenders. Having them see and experience your product's value firsthand can create a lasting impression and help you stand out from other applicants.
Personal Credit Score: Many lenders require personal guarantees when extending business credit. Make sure that your personal credit score is in good standing, since this will a significant role in the approval process.
Efficient Use of Credit: If you secure a line of credit or use a business credit card, allocate these funds wisely. Utilize them to purchase necessary materials, invest in growth opportunities like attending trade shows or other concrete steps to expand your business.
Humanize the Process: Remember that lenders are people too. Build relationships, communicate your business's unique value proposition, and show how your financial needs align with your growth objectives.
Cost-Benefit Analysis: Be aware that interest rates on business loans or lines of credit may range between 8% and 10% during a recession. Factor in these rates when evaluating the costs and benefits of financing options.
Consider a CDFI: While traditional banks often have strict requirements for securing business loans, Community Development Financial Institutions (CDFIs) are more accessible to businesses that may not meet traditional bank requirements. Here is one example of a CDFI in Upper Manhattan. You can find your local version of these kinds of resources set up specifically to help small businesses.
3. Don’t DIY This
Navigating a “silent recession” requires you to be proactive, adaptable, and think outside of the box. By conserving cash, exploring alternative financing options, finding new growth opportunities and pursuing a business line of credit, you can make sure your business not only stays standing during economic uncertainty, but emerges stronger. This is not a time to go it alone! Consider joining a community of other entrepreneurs such as The Network, a Chamber of Commerce or Luminary to find peers, mentors and coaches as you navigate how to protect and grow your business, no matter what is happening in the economy. And who knows, you might find your new business bestie?