3 reasons small businesses may struggle in 2023 and how to prepare

A woman in an apron and watering cans walks into her small shop lined with shelves of plants.

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Anyone who tells you that they can predict the financial future may be fooling themselves.

Key points

  • The keys to overcome inflation and/or a possible recession are fundamentally the same.
  • Planning for downturns in the economy is the best way to keep your business afloat.
  • Creating the ideal workplace may not be easy, but it will surely attract and retain the best candidates.

We all know by now that pessimism sells. Fear inspires people to dig deeper into a subject. But we’re not going to do that here. The truth is, no matter what you’re told, none of us know what 2023 will bring. What if it’s wonderful? What if the economy takes off and your small business thrives? If any of us knew how to predict the future, there would be no losing bets.

Instead, let’s look at some of the reasons why small businesses May fight in 2023. More importantly, let’s consider the steps you can take to prepare for the bumps in the road. And if those lumps don’t appear, great. Safeguards are never bad, no matter how optimistic or dire the predictions may be.

1. Potential recession

While we made it through the worst of the pandemic with the shortest recession on record, there are plenty of people selling advertising shouting the word “recession” to the rooftops. And you know what? They will be right at some point. The thing is, there’s no way of knowing when it might be.

Recessions are a natural and expected part of the business cycle. Things get too hot and the Federal Reserve has to raise rates to slow them down. Global pandemics hit and the economy is turned upside down. Since you know a recession can strike, do what you can now to prepare. Here are some ways you can do that.

Get control of your cash flow

According to a US Bank study, 82% of business bankruptcies are due to poor cash flow management. So before financial problems arise, keep track of past due invoices. If you don’t already have them, have employment contracts drawn up that include late fees. It won’t help with bills that are already overdue, but it may help you avoid the problem in the future.

Another way to reduce the risk of non-payment is to collect a deposit upfront for high-paying jobs. A customer who has paid a deposit is much less likely to skip the final payment.

We understand the need to maintain goodwill with your clients, but that goodwill must come from a place of mutual respect. You provide what the customer needs and the customer does their part by paying in a timely manner.

If possible, put a portion of the money you collect into an emergency savings account. That way, you don’t have to panic if the furnace breaks or business slows down for a while.

cut the fat

Take a close look at your monthly expenses. Are there any expenses that can be reduced? It may mean buying from a different vendor to get a better price, insulating your store to pay less for utilities, and paying off credit cards monthly to avoid paying interest.

If you have employees, ask them to help you identify where cuts can be made. They may notice things you’ve missed. Also, asking for information reminds employees how much you value their opinions.

secure financing

If you’re worried your business won’t be able to weather a recession, open a business line of credit while things are going well. If you ever need to access the funds, the money will be there. If you don’t, that’s one less payment you’ll have to repay.

READ MORE: The best business credit cards

Be creative

Brainstorm ways to increase business. It can be as simple as sponsoring a local minor league team, placing new ads, or partnering with another business to promote each other.

2. inflation

Knowing that there is little you can do to control inflation is a feeling of helplessness. It can also make you worry about the longevity of your business.

While it’s never nice when the Federal Reserve raises the prime rate (the interest rates banks pay to borrow money from each other), it helps to understand that it does so for a purpose.

When the Fed raises rates, it is to slow down an economy that is growing too fast to be sustainable. When interest is cheap, the price of goods and services increases. The reason the Fed is raising rates slowly and methodically is so that prices slowly come back down to Earth.

If you’re worried that you won’t be able to beat inflation until it’s under control, check out the tips above. The same moves that can protect you from a recession can also help you through periods of inflation.

3. Hiring is a bear

If you have problems hiring in 2023, it is undoubtedly due to the high competition. Here are some tips to differentiate your business.

  • Offer flexibility: If employees can and want to work remotely, allow it. If they need a Tuesday off every other Tuesday to take their child to physical therapy, find a way to make it happen. Flexibility does more than make life easier for employees. It also tells them that you value them enough to bow down.
  • Add values ​​to your business: People want to work where they are safe and where they know they will be treated with respect. Make it clear to all employees (including prospective employees) that your company values ​​kindness. Talking about each other behind their backs will not be tolerated and since you see them as an asset, let them know that they will always have your respect.
  • Offer a fair salary: Gone are the days when a business owner could pay the lowest rate and still have their pick from the talent pool. Research how much each role pays on the open market and make sure you match that amount (at a minimum). If you don’t have money in the bank to offer fair pay, it means you’re not ready for a new hire.

The easiest way to overcome a losing streak is to prepare for it. And remember, forecasters aren’t always right. 2023 may end up being the best year in its history.

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