There may be a recession in 2023. JPMorgan reported that the US economy would likely slow down despite attempts by the Federal Reserve to control inflation.
These predictions will be accurate, and entrepreneurs should prepare their businesses for the future. There are many risks that sales could plummet, budgets could shrink, and capital funding could be more difficult.
Insider spoke to experts and founders to learn how recessions could impact entrepreneurs’ bottom lines and what steps they could take to prepare.
The Challenge: Funding may be more difficult to obtain, but it is possible. Widespread layoffs in tech and a drop in venture capital investment indicate that the era of high-growth, high-spending startups has ended, Jack Newton, the co-founder and CEO of Clio Software stated. Although investors are reducing risk and taking precautions, the market isn’t dying.
He said there is still plenty of dry powder in the market, and investors have access to a lot of capital, but it will be at a different cost. He also suggested that entrepreneurs adjust their expectations based on the large venture deals of the past decade.
He said that investors are writing checks at multiples of the half to three-quarters of the amount they were one year ago.
Venture capital is one of many that are affected. As interest rates rise, bank loans become more costly to obtain.
Ryan Middle is a serial entrepreneur specializing in growth and says that a recession is not a good time to be in credit.
He said, “When you don’t need it, and it’s affordable, it’s the best time to pursue the debt.”
Auditing your books now is a good time to do so, and make sure you have enough cash reserves to get through the tough times. Middle suggests that you hire a third party to audit the books. Accounting is often an afterthought for founders.
He said, “It’s an excellent way to catch things you might not be able to see,” “Minor amounts of money could leak out in places that you didn’t know about,” he said.
He suggested that you also audit your processes while you are at it. A company in high growth might use ad-hoc systems for now, but they will need to be redesigned in the coming months to make them sustainable and more efficient.
He said, “We get stuck in the day to-to-day grind of our business.” “All of a sudden, we don’t realize that our processes aren’t as efficient because we’re so familiar with them.”
Insider was told by Isabel Guzman (administrator of the Small Business Administration) that although inflation has shown signs of cooling, it would still be a challenge for business owners to adjust prices through the new year.
She said, “They must either adapt their model or find the right pricing structure to survive during these times.”
Inflation and interest rates often indicate how willing people are to spend. As their household savings shrink, Americans are cutting back. We still saw record sales of $35.4 billion between Cyber Monday and Thanksgiving.
However, decreased spending doesn’t necessarily mean consumers will stop buying things they don’t need or value.
Middle stated that people don’t want to spend as much in times of recession. “But, it boils down to that they must experience greater value for the money they spend.”
Small business owners learned to adapt to environmental constraints and customer needs earlier in the pandemic. They also learned how to make their services online and to substitute products when supply-chain problems prevailed.
Richard Bliss from Babson College is a finance professor. He said that business owners would need to look for new ways of growth. This would include adapting their products or services to be more appealing in a downturn.
He said, “Even in a downturn, market segments still do well, or even better in some cases.”
Middle suggests founders reach out to the top 20 clients and suppliers early to avoid a sales slump. Ask them about their immediate concerns and how you could help.
He suggested you reduce your marketing investment on new clients and focus on helping customers who are already familiar with your brand.
