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economic downturn

By Rieva Lesonsky

If there’s one thing that’s predictable about entrepreneurship, it’s that it’s unpredictable. In this special series, we’ll help you prepare for uncertainty, minimize risks, and protect your business.

Talking about an economic downturn right now might seem like a move only Debbie Downer would make. After all, retail sales are at record highs, unemployment is at record lows, and the United States is enjoying the second-longest economic expansion on record.

But what goes up must come down—and as every seasoned small business owner knows, being prepared for an economic downturn is always a smart move. With many economists predicting a recession will hit within the next few years, now is a good time to get ready.

Track economic indicators

Keeping an eye on key economic indicators will help you spot the warning signs of a recession so you have time to prepare. Here are some key economic indicators to watch:

The Bureau of Economic Analysis publishes monthly tables of the U.S. Economy at a Glance that are very useful.

Track your business’s Key Performance Indicators

Just as important as the overall economic picture is your business’s economic performance. The key performance indicators (KPIs) that matter most will differ depending on your industry and your business. However, for most small businesses, these are the ones you want to keep an eye on:

  • Cash flow: Do you have enough cash flow to meet your obligations?
  • Revenues: How much money is your business bringing in?
  • Profit margins: Are your profit margins healthy? Are they growing or shrinking?
  • Leverage: Are you using financing wisely to grow your business?
  • Customer retention: What share of your business comes from existing customers? If you have a lot of customer turnover, or churn, it’s a warning sign.
  • Customer acquisition cost: How much does it cost you to get each new customer?
  • Customer lifetime value: How much money can you expect to make from a customer over the span of their relationship with your business?
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Prepare for future financing needs

The time to borrow money is when you don’t need it. Even if you think you will never need to tap into it, figure out several options for accessing business capital just in case. Get a business line of credit; obtain some new, low interest business credit cards; and maintain a strong relationship with your business banker. This will put you in a good position to tap into business financing when others may be running dry.

Protect your business with insurance

You can’t insure your business against a recession, but you can shield what you’ve built from the risks that threaten entrepreneurs in any economy. Make sure you have sufficient commercial property insurance, general liability insurance, and business income insurance to protect your business from theft, fire, lawsuits, and other unforeseen circumstances. You can get all three coverages by purchasing a Business Owner’s Policy (BOP) from The Hartford.

Depending on your business, you may also need workers’ compensation insurance, commercial auto insurance, and other special endorsements. Talking to an insurance agent can help you determine the best type of coverage for your company at the best price.

You can’t prevent an economic downturn—but with the help of The Hartford, you can be prepared for all the twists and turns life throws your way.

DON’T MISS: Is Your Small Business Prepared for the Next Disaster?

In partnership with The Hartford

About the Author

rieva lesonskyRieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at [email protected], follow her on Google+ and Twitter.com/Rieva, and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.

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