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How SMB owners can prepare for a recession

As industry leaders and experts warn about an upcoming recession, SMB owners should take quick action in order to keep their business thriving through difficult times.

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How SMB owners can prepare for a recession

Key takeaways

  • Economists and business leaders are warning that we may be facing a recession soon.
  • SMB owners should act now and recession-proof their business to be able to navigate difficult times ahead.
  • Some strategies include prioritising communication with employees, focusing on existing customers and creating emergency funds to be used in worst-case scenarios.

How SMB owners can prepare for a recession

22 July 2022 | SMB, Digitalisation | 5 min read

Even in normal times, growing a business is a challenging endeavour. But just as SMB owners recover from the impact of the pandemic, they have to prepare for a potential recession.

Although not a certainty yet, many signs indicate that businesses should be planning for some challenging times ahead. In fact, 60% of SMBs surveyed by the Singapore Business Federation (SBF)  in April 2022 said they have been negatively hit by the ongoing Ukraine war. Some economists are also suggesting that unlike in the past, recessions may occur in shorter cycles in the future.

Business owners will therefore need to act now so that they can be prepared for these cycles. Follow these guidelines so you can minimise the impact of a recession and continue growing your business.

1. Keep employee morale up with clear communication

As a leader, it becomes your responsibility to keep employee morale up, so that they can continue driving your business forward. They may already be troubled by the rumours of a recession and layoffs in other companies, and the last thing they want is to be kept in the dark.

Clearly articulate the fact that times are tough and the road ahead for the business may be bumpy. But at the same time, instil hope and confidence in your team that you can get through it together.

Make it a priority to join company-wide meetings and even individual one-on-one check-ins with employees. If you are using a collaboration tool like Microsoft 365, you can make use of the Teams app to schedule video calls, send quick updates and even create new channels for celebrating company wins and individual contributions of your team members. 

A recent study conducted by Mercer revealed that one in two Singaporeans were planning to resign in the next six to 12 months. 30% of survey respondents stated “uncertainty with changes not being clearly communicated” as one of the reasons for their resignation plans. 

2. Set aside an emergency fund ahead of time

Financial advisors often recommend people to set aside savings that will help them survive three months without an income in case of emergencies. Similarly, you should also create an emergency fund for your own business to be used during difficult times.

The exact amount recommended varies between three to six months’ worth of expenses, but this is something you should decide based on your own cashflow, forecasts and revenue trends.

You can also make it easier to build up the emergency fund by automating the transfer of a certain amount or proportion of your monthly revenue to the new account. 

Tip: Create the emergency fund in a new account, separate from the one used for your day-to-day business expenses. That way, you will not be tempted to use the emergency savings unless it becomes a last resort. 

3. Focus on existing customers and build loyalty

In times of recession, consumers tend to be careful with their spending. This means it may be harder to win new paying customers.

It is crucial therefore to do everything you can to keep your existing customer base happy. Determine who your happy customers are and who are the unhappy ones who might be close to cutting ties with your business. Talking to each group can also help you understand their needs and what they are most concerned about potential recession. 

Then explore ways you can improve your customer service for each group. This is the time to offer perks such as discounts and freebies that might prompt your loyal customers to renew or extend their contracts. 

4. Take your business online to expand to new markets

It might sound counter-intuitive, but now might be a good time for you to consider expanding to international markets, if you haven't tried it already. If you have only been operating physical stores until now, look to set up an online e-commerce version of your store.

This opens up the the potential customer base to international markets so that you have more options for bringing in revenue. This could also be a useful strategy to get ahead of your competition, as they may be more conservative or even looking to wind down operations in some aspects of their business.

Tip: The Market Readiness Assistance (MRA) Grant from Enterprise Singapore provides support for SMBs in Singapore to take their business overseas, covering up to 70% of eligible costs, capped at S$100,000 per company per new market.

5. Look for new sources of financing ahead of time

Even if you don't need additional financing at the moment, try looking for new sources of funding. Financial experts often say that the best time to borrow money is when you don't need it. When you try and borrow when you are desperately in need, it can turn off lenders as they may be doubtful of your ability to repay the loans.

For SMB owners in Singapore, there are a number of financing opportunities from various sources. This includes loans such as the SME Working Capital as well as alternative lenders and fintech startups that make it easy for small business owners to get financing. There are also grants for businesses looking to adopt IT solutions, such as the Productivity Solutions Grant, which subsidises the purchase of specific cybersecurity solutions.

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