With 72% of economists predicting a recession by the end of 2021, it doesn’t come as a surprise that small business owners are beginning to wonder what they can and should do to prepare. During the 2008 financial crisis, small businesses were among those hit the hardest, and given small businesses account for 44 percent of U.S. economic activity, they’re a critically important part of our economy. Therefore, small business owners need to ensure they have the right resources, tools and advice to not only continue business, but also drive business growth.
Before we get too concerned, one point to remember is that a recession is part of the natural economy. While recessions are uncomfortable and tense, they are part of cyclical markets that come with economic expansions and contractions. According to the National Bureau of Economic Research, the average tenure of a growing economy is 3.2 years, and the average recession lasts for 1.5 years. Further, not all recessions are the same and shouldn’t be treated as such. People that discuss the potential of a recession today typically compare it to the Great Recession. However, there were many recessions before that, each with different levels of impact and severity, and as a result, helped inform and boost business economics going forward.
With this in mind, there are commonalities across recessions that should be considered. For small businesses, these include the loss of access to capital, budget constraints and the inability to hire. Below are three areas small business owners should focus on to prepare for any recession and mitigate business disruption:
Manage expenses prudently
During an economic downturn, small business owners need to closely monitor and manage cash flow to make strategic decisions based on top priorities. Tools and solutions to help manage invoices and ensure they, and their vendors, get paid include PayPal Invoicing and Invoice2go. These kinds of solutions create a seamless invoice management process for small businesses, allowing for peace of mind as processes are handled automatically, with little effort needed from the business owner. This doesn’t mean the tool should be ignored all together – as like any product, these tools can run into operational issues – but they are often referred to as a ‘behind the scenes’ machine that operates with little-to-no management.
Match up any loans with the life of assets that you are borrowing against
As business owners consider potential lines of credit – particularly in times of market volatility – it’s important to understand whether doing so is the right investment decision both for the short- and long-term. This includes weighing the ROI against any fees incurred and reflecting on the time it would take to pay off the loan. Seeking out financing solutions that offer transparency into fees, repayment structures and quick funding – such as PayPal Working Capital and PayPal Business Loans – is one way business owners can equip themselves with the information to make the right financing decision for their individual situation, and even pay off loans automatically as sales are made.
Create positive experiences & focus on serving customers
Regardless of economic volatility, creating seamless, easy-to-use customer experiences are table stakes to attract and retain customers. It’s also an important component of business competitiveness in today’s evolving small business landscape – particularly in periods of recession. Small businesses should consider offering a variety of payment options and digital wallets, which can also drive a consumer’s willingness to buy and provide a solve for shopping cart abandonment. Research from IPSOS, commissioned by PayPal, found 44 percent of people are more likely to shop on an ecommerce site if they know up-front that their preferred payment provider is accepted so they can pay the way they want. What’s more, PayPal’s 2019 Global mCommerce Index found 21% of consumers globally have abandoned a purchase because their preferred payment method was not accepted.
Small businesses have a huge impact on the U.S. economy, and as we look at the broader global economy, their importance is also very significant. These businesses are the lifeblood of the global economy and make massive contributions to job creation and economic development, representing nearly 90 percent of global business and over 50 percent of employment worldwide, according to the World Bank. Regardless of the state of the economy, small business owners are eager to understand how to best protect and grow their business. One way is working with partners that have not only weathered the storm but believe in the power of small business by providing the solutions, support and insights to help meet challenges and overcome adversity throughout the entire journey.
Doug Bland is the VP and GM, Global Business Financing at PayPal.
Business recession stock photo by Elnur/Shutterstock
