How to Prepare Your Small Business for a Recession
Strengthen your cash reserves, secure a business line of credit, make shopping easier for customers and cut unnecessary expenses before a financial crunch forces your hand.
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Managing Editor Some economists are sounding the alarm over a potential U.S. recession as early as the end of this year.
Trade tensions, persistent inflation, an unstable job market and fading consumer sentiment are just a few of the warning signs pointing to economic turbulence ahead.
For many small-business owners, this could mean slower sales, tighter access to financing and, in some cases, business closure. With fewer resources to rely on, small businesses are often hit harder than large ones during recessions.
But you don’t have to wait for an economic downturn to prepare.
Beef up your cash reserves
When the economy’s in the gutter, customers often pull back on discretionary spending and clients may delay paying invoices.
This can put a serious strain on your business if you don’t have other resources to rely on. One thing you can do now is set money aside to get you through those lean periods.
Aim to save at least six to 12 months’ worth of business expenses, Helen Dao, certified financial planner and senior vice president of investments at Stirlingshire Investments, said in an email. If you’re in an industry more sensitive to economic shocks, like retail or construction, Dao recommends saving even more.
🤓 Nerdy Tip
If you already have a healthy cash reserve, consider paying down existing small-business loans. If that’s not realistic, you may be able to refinance existing debt to help lower monthly costs. Secure flexible financing ahead of time
If your cash reserve dries up, a business line of credit can provide a second layer of security.
It works a lot like a credit card. You borrow only what you need (up to a limit) and pay interest only on what you borrow. Keep in mind that you may have to pay origination, inactivity or other fees.
It’s generally easier to qualify for a loan when your business is in good shape and the economy is stable, according to Dao. Securing a business line of credit now means you'll have it available if conditions worsen.
Dao said to make sure you use your line of credit strategically and only when necessary. Taking on debt will make a bad situation worse if you can’t pay it back.
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Make it easier for customers to buy
People still spend money during recessions — they’re simply more selective about where they spend. While a drop in sales may be unavoidable, there are ways to meet your customers halfway.
According to NerdWallet’s 2025 Small Business Month Study, around 2 in 5 Americans (41%) say they would shop at small businesses more often if it was more convenient to do so.
Ways to reduce friction include adjusting store hours to better align with customer schedules, accepting multiple payment methods, offering curbside pickup or local delivery, and providing a flexible return policy or money-back guarantee.
You can also adapt how you offer your goods or services to give customers more options. Bundling, subscription plans, gift cards, service tiers or bulk buying options can help customers save while keeping your revenue steady.
If you run a B2B company, consider offering flexible payment options (like Net 30) to help improve sales conversions. You can then offer discounts for upfront or early payments to increase the likelihood of being paid in full.
Cut back on unnecessary spending
Take a proactive look at your business expenses. Trimming waste now can free up cash for savings or growth.
Look for unused subscriptions or overlapping software tools. If you haven’t reviewed your business insurance recently, consider comparing quotes to ensure you’re getting the best value. Reassess marketing initiatives that aren’t delivering a measurable return on investment.
However, be mindful not to cut essential spending. You don’t want to save a few dollars today just to lose your competitive edge tomorrow.
While it’s impossible to predict exactly when the next economic downturn will hit, streamlining costs now can help you stay ahead while your competitors scramble to catch up.
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