A Recession May Be Coming. Here's How Small Business Owners Can Prepare

Gear up for a downturn -- just in case.

Is a recession going to batter the economy in 2023? Wouldn’t we all like to know?

Financial experts have been warning for months that we could be headed for a period of economic decline. That's because the Federal Reserve is committed to cooling inflation, and it plans to keep implementing interest rate hikes until living costs come down. That could cause a big decline in consumer spending. And that could lead to a recession -- either a mild one or something worse.

A recession could also hurt a lot of businesses. And if you own a small operation, you may be worried about an economic downturn and how it might impact your bottom line.

Now we don’t know for sure that a near-term recession is coming. But here are some steps you can take as a small business owner to prepare.

1. Trim expenses

The more of an effort you make to conserve funds, the easier it might be for your business to make it through a recession. To that end, take a look at your various expenses and see if there are any extras you can trim.

In some cases, that could mean cutting ties with certain vendors and securing supplies that are less expensive. In other cases, it could mean clawing back certain employee benefits, like onsite meals. But just as now’s the time for individual consumers to be cutting their spending and banking more money in a savings account, so too should small businesses do the same.

2. Re-evaluate your staffing needs

Maybe you brought extra staff on board to manage the holiday rush. If your seasonal workers impressed you, you may be inclined to keep them around. But before you make that call, think about whether you can really afford that in light of a potential downturn.

In fact, it’s a good idea to assess your staffing needs and make sure you’re not paying for labor you don’t really require. You might, for example, have a full-time marketing manager on staff. But you may come to realize you can probably make that a part-time role -- and save yourself some money in salary as a result.

3. Avoid committing to large expenses

Maybe your commercial lease is coming up for renewal, and you’ve been itching to get into a larger space. Or maybe you’re ready to sign the lease on a vehicle you use for business purposes.

While these may be reasonable expenses to take on, now may not be the best time to commit to them. If a recession hits and your revenue declines, expenses like these may be hard to keep up with. So a better bet may be to keep your spending on big things like commercial space and transportation at its current level while you see how things play out, then reevaluate.

We don’t know what the next number of months have in store for the U.S. economy. But preparing for a downturn is something every small business owner should do. And these moves could put you in a better position to get through a period of upheaval.