KEY POINTS:

• A Wall Street Journal poll estimated a 63% chance of a recession sometime during 2023.
• Another recent industry survey revealed that many Wisconsin businesses are concerned that the state is heading toward a recession. 
• 59% of business owners said inflation increased business costs by over 10%. In comparison, 41% said their costs increased by 10% or less over the last year.
• 43% said business energy costs have increased by over 10%.
• 85% said they are facing challenges in hiring employees.
• 84% expect to raise wages by more than 3% during 2023. 
• 60% expect their number of employees to increase over the next six months.

Over the past year, there has been lots of talk about a looming recession, and experts surveyed by a Wall Street Journal poll estimated a 63% chance of a recession sometime during 2023. Another recent industry survey revealed that a large portion of Wisconsin businesses are also concerned that the state is heading toward a recession. 

Wisconsin Manufacturers & Commerce (WMC), the combined state chamber and manufacturers’ association, published the results of a survey they conducted in mid-December on various topics. In addition, specific data was released concerning the state economy and workforce,  which involved 164 employers from a variety of industries. 

Sixty percent of businesses surveyed reported they feared a recession was coming.

Not only did they feel an impending recession, but businesses also reported:

• For example, 59% said inflation increased business costs by over 10%. In comparison, 41% said their costs increased by 10% or less over the last year. Zero percent reported no change in business costs. 
• 43% said business energy costs have increased by over 10%, while 56% said they experienced an increase of 10% or less. Just 4% reported no change in energy costs. 
• 85% said they are facing challenges in hiring employees.
• 84% expect to raise wages by more than 3% during 2023. 
• 60% expect their number of employees to increase over the next six months.

The survey reported that 39% of employers rated Wisconsin’s economy as strong/very strong. That number reflects a five-point drop from the Summer and far below the 53% who said they perceived the economy as strong/very strong just one year ago. The national outlook is even worse, with 20% rating the United States economy as strong, compared to 39% last year. 

The survey revealed a bleak outlook and a sense of uncertainty about the economy. In the past four surveys, the amount of businesses projecting the economy to grow has drastically fallen from 84% in the Summer of 2021 to just 42% today. Moreover, the projection for national economic growth is worse, with only a quarter of those surveyed anticipating U.S. economic growth over the next six months. 

One significant contributing element to this economic anxiety is the historically high, unwavering, and unforgiving inflation plaguing Wisconsinites and Americans alike. Around 6 in 10 Wisconsin businesses have witnessed costs spike by double digits in the last year. The Wisconsin Employer Survey data shows that most companies still navigate record cost increases.

Despite economic concerns, companies are still hiring. Around 60% of those surveyed plan to build their team of employees in the next six months. However, this was 79% in the Summer 2021 survey. There is still a noticeable drop in Wisconsin employers hiring.

We cannot do anything about the trajectory of the United States economy. That being said, it’s essential to focus on what you can control; your business. Of course, a recession will present plenty of challenges and obstacles for you and your business, but easing into innovative changes can help your company develop a fearless growth mindset and an ironclad business strategy. 

How Small Businesses Can Prepare For A Recession

There are some things small businesses can do to prepare for a recession; one of the most important things to do is to adopt an “adapt and survive” mindset.

While there is no surefire way to know what hurdles you may face, you can prepare yourself for difficult times and stay one step ahead of the game.

Control Costs

Inflation is out of control, costs have been and continue to rise, and an economic recession will only make these high costs more unbearable for a business. Business owners can prepare now by evaluating operations, trimming the fat, and doing away with anything unnecessary to strengthen their cash position. 

You can enter the next recession confidently by evaluating where you can save money regarding your business operations and finding creative ways to control costs. 

Protect Revenue and Profits 

Identify your most robust revenue channels and then protect those channels and the profits they are generating. You may have to adjust your entire business model, switch pricing structures and decide to drop certain products, services, or clients that don’t generate strong profit margins for your company. Instead, nurture the aspects of your business that bring you the most value and profit. 

Take Saving Seriously

Save money today, and it will save you tomorrow. Solid savings can help carry you through difficult economic times. For example, instead of reinvesting profits in the business or paying them out in dividends to shareholders, consider stashing any extra away so you can count on it being there when you find yourself in a tight spot. 

Review Receivables

You can expect a recession to touch everyone. You may notice your customers begin to pay more slowly, and you may have more difficulties collecting accounts receivable. Start sorting this out by analyzing clients’ current payment habits. If you have a handful of clients who pay late consistently, you can expect that to be the same or worsen during a recession. 

If needed, update payment terms and schedule contract renegotiations to keep you more secure during economic turbulence. 

Optimize Inventory 

Having too much inventory can reduce your cash without adding to your profit.

On the other hand, having too little could result in lost sales and potential customers. Managing your inventory isn’t always easy, but during a recession, it’s going to be necessary. Manage inventory against existing orders and forecasted sales. 

Optimize your inventory, so you have enough, plus a safety allowance. Be sure to adapt inventory levels with market changes. The last thing your business needs is to get stuck with excess inventory during a recession, as it will move slowly, and you may have to sell at a discount or suffer a loss.

Cut Unprofitable Products and Services 

Work with your finance department or CPA to identify unprofitable products or services in your organization. 

Preparing for a recession will typically require businesses to focus on the most profitable products/services and cut off anything that’s not as fruitful.

Re-evaluate or Pause Ongoing Projects 

Businesses usually review ongoing projects and strategic initiatives regularly because market conditions fluctuate. Projects no longer meeting expectations due to market changes should be paused or canceled until the conditions improve. Conversely, you don’t need to invest additional resources into projects that do not yield expected results, especially during a recession. 

Consider Investing Savings in Marketing

Consider applying the savings mentioned above to secure new sales for your business. Many companies jump to cut their marketing budgets during downturns, leading to lower revenues. Many experts suggest investing in sales and marketing during downturns. 

Companies quickly cut their marketing budget during downturns, so don’t do it immediately. That automatically gives you an edge over your competitors, could potentially increase revenue and could open the door to taking over a larger market share since they are decreasing their marketing presence and you are investing in yours. 

Analyze Metrics & Make Data-Driven Decisions

Performance metrics are gold, especially when navigating a recession. Not paying attention to metrics could contribute to a business’s downfall. 

Metrics can give you clear indicators of whether or not your business is meeting set goals or is on the right path to reaching those goals. Reviewing metrics can improve your strategies and help you make more informed, more impactful decisions. Past performance metrics can guide current decision-making, and tracking current performance will provide necessary insight into what is working and what’s not.

You can collectively look at past and current data to create your future roadmap, ensuring you don’t make the same mistakes twice and enabling you to hone in on the elements of your business that are helping it grow and succeed.