small and medium businesses

How to Recession proof your business – Tips to Small & Medium Businesses

The biggest challenge faced by Small and medium business owners is capital and working capital, banks have tightened their credit criteria to small and medium businesses and convincing a lender to grant a loan is the toughest task, while there are other options such as angel investors and informal lenders, those options are not for all the businesses.

Related: How to Fail-Proof your startup business

Due to current economic conditions, most of the SME’s are facing difficulties and it is very important to prepare yourself and businesses to face the financial hurdles, your success depends on sustaining your business in tough economic conditions, here are some tips to keep your business recession proof

Build and strengthen your credit history

When the economy is good, capital is available to everyone, but when the economy is facing a downturn, capital is available only to the best. Banks need to lend to keep their operation running, but they will look for the best creditworthy customers to lend when there is a market downturn, thus building and strengthening your credit will take your loan application to success. Remember, loans available only to those with the best credit and track record in managing their finances.

Start a Savings buildup

Highly misunderstood and poorly practiced method, but highly effective when it comes to recession proofing, let me explain how it works, set a standing order from your main checking account to a separate savings account, the amount can be any amount which you can easily keep out from your day to day business operation, the healthy ratio is 1% of your monthly revenue or 10% of your net profit, you can increase it according to your affordability.

build wealth

A business with a 5 Million monthly revenue can easily save approx. 600,000 LKR in a year. This will help handy when the market is not good or if there is a recession, you can sustain your business overheads for a few months until the market picks up.

Be prepared / Have a Plan B

Capital is available to the people who are agile and prepared, study all the past recession and how businesses of that time handled and overcame the recession, understand the concept, tricks behind strategies. Not every business suffers when there is a recession, understanding the macroeconomic factors might save you and your business.

Related: Make your loan application a grand success – Advice from a Banker

Manage risk effectively and closely

Managing risk is a critical aspect of any business, even more, important in tough market conditions, use predictive analytics to make business decisions. Reduce credit period to buyers, trade and stock according to market demand and managing effective sales promotions are few recommended risk mitigation tips.

Bottom Line

Recessions are not fun to handle, but it is an opportunity to entrepreneurs, most of the big businesses now are started or sustained during a recession period and recessions bring opportunities to entrepreneurs to innovate, expand and excel. Good luck recession proofing your small and medium businesses.

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