As the news suggests, economists are warning of an incoming global recession. Some say a modest downturn will take effect in the first quarter of 2033, in which rising energy prices, geopolitical conflicts, COVID-19 countermeasures in major economies, and supply chain disruptions play a part in slowing growth globally.
While these events occur on the global stage, the backbone of our economy, small and medium-sized enterprises or SMEs, are vulnerable to economic recession. However, these businesses can seek to minimize risks by taking necessary actions. Read more to find ways SMEs can prepare to survive a global recession.
How SMEs can prepare against a global recession
Knowing of a global recession can be scary. Be sure to follow the steps listed below to sustain your small business.
Focus on your cash flow
First and foremost, focus on your business’s cash flow. This is your business’s lifeline and will be the king during the economic recession. Taking care of your cash flow means collecting your receivables as per agreement. If any receivables are past due, contact them to follow up on their purchases or loans.
On top of that, you may need to double-check your payables. Are they recorded accurately? Reviewing your financial records regularly is recommended so that every statement matches the transaction receipts. In this age of technology, some software is available to help you during this process.
Be in touch with your lenders
Most business owners today are aware that they may be at risk in the face of an upcoming recession. Money will likely be tight then, so you may have difficulty paying back loans. When you anticipate struggling to repay your loan during the recession, get ahead and contact your creditors.
With an accurate view of your cash flow, reach out to them to see what leeway they may offer you. Avoid hesitating because, realistically, lenders would instead work with you on your repayments than see you go through default.
Negotiate with vendors
Do you have an overview of your current terms for paying your vendors? SMEs who consistently pay on receipt may ask if they can pay net 30 or even net 60, as in a payment period of 30 days and 60 days, respectively. It would be good to discuss with vendors to get the best possible deal, though they may not say yes, considering that the global recession also affects them.
Explore your financing options
Some business owners think they can weather the coming storm and recession without credit, which may ring true. Nevertheless, it is always better to weigh your financing options before you need them because there are fewer options available by that point, and you will be struggling to survive. That is why small businesses may find that having a flexible option like a revolving credit line may be a good safety net.
Another often overlooked form of financing is trade financing or invoice financing. Through this facility, you can use the invoice as collateral, which you would pay upon receiving the payment from your client. Invoice financing may shave off a percentage of your profit because of the fees. It is an option when you need to get through a rough spot.
Keep communication with your customers open
It doesn’t matter what stage your business is at; you have built your business based on customers’ trust. In the face of an economic downturn, they may lose confidence in your company. To avoid losing customers, do not leave them guessing. Instead, please provide them with transparency and accountability for them to count on you.
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