Professor’s 6 tips: How to prepare your business for a recession

There are many indications that Sweden is approaching a recession. How should you think as a small business owner? What are the most important steps to take in these uncertain times? Professor Sara Thorgren gives her best advice.

During the pandemic, businesses in certain sectors were hit hardest, such as restaurants and companies in the tourism and hospitality industry. But in a recession, many more could be affected as a weakened economy hits on a broad front.

– Small business owners should prepare for a tough economic time. We risk fooling ourselves if we think that everyone else but ourselves will be affected. A recession risks affecting all industries, albeit to varying degrees, says Sara Thorgren, researcher at Norrlandsnavet and professor of entrepreneurship and innovation at Luleå University of Technology.

She urges small businesses to put all their efforts into taking control of their finances now. Here are Thorgren’s top six tips for small business owners who want to prepare for tough times:

1: KEEP TRACK OF FINANCES

If you manage the finances of your company yourself, it is essential to keep a close eye on your company’s finances. If someone manages your finances for you, keep in close contact with them.

2: ANALYZE THE CASH FLOW

Look at what the cash flow has looked like historically. Once you have an answer to this, you can also analyze the future: at what times of the year is cash flow usually particularly poor? Based on the answer, you can ask yourself what can be done now to prevent it from being the same period in the future. Work on the basis of three possible scenarios – the worst, the most likely and the best scenario.

3: CUT COSTS

Review all costs and analyze which ones are “necessary” and which ones are “nice”. Consider cutting the ‘nice to have’ costs to build a buffer. Examine whether it is possible to renegotiate different contracts. Now is also not the time to invest in the business – so postpone those plans until there is less uncertainty.

4. KEEP TRACK OF YOUR COMPANY’S RECEIVABLES

During a recession, some business customers are likely to fall behind on payments. If customers go bankrupt, it can hit your business very hard. Carry out a risk analysis on existing customers and, if possible, renegotiate payment terms on new contracts with high-risk customers. In small towns, it is worth having big ears. Be sensitive to whether any company you do business with is lagging behind with payments.

5. MINIMIZE DIVIDENDS

Keep any profits in the company instead of distributing them to the owners. By saving money in the company, you are preparing the company for bad times.

6. CREATE WIN-WIN SITUATIONS

Your business is not the only one struggling in a recession. Find out what challenges your customers and suppliers are facing and contribute as much as you can without major sacrifice or risk to your business. In uncertain times, it is particularly important that all decisions are businesslike. Maybe someone needs help promoting their products or services through your company? If your customers and suppliers survive the recession, your business will also benefit.

Contact sara.thorgren@ltu.se