Top 5 Mistakes Small Businesses Make In A Recession

A general contractor regrets decisions made during a recession.
| 12.05.22
George Hancock Jr.

A recession is often defined as a substantial decline in economic activities, lasting anywhere from a few months to several years. This decline is usually observable in employment rates, real income, and other benchmarks. Although the US economy has proven resilient, it has periodically sputtered lately due to pandemic-induced supply chain stresses, inflation, and other problems. 

No business likes an economic downturn, but being prepared can help mitigate the impact of a recession. To quote Maya Angelou, “Hoping for the best, prepared for the worst, and unsurprised by anything in between.” We’ll explore the recession mistakes often committed by businesses so you can avoid them as a small business owner. 

Here Are 5 Mistakes To Avoid During An Economic Recession

Avoid Toning Down Marketing Efforts
When an economic recession hits, the marketing budget is often one of the first to be pruned because it’s perceived as a non-essential expense. However, research has shown that ramping up marketing efforts or at least maintaining marketing and advertising presence serves businesses better in the long run. Investing in marketing efforts, especially digital marketing, during a recession is crucial in several ways  

  • It will help you to grow the company and its revenue.
  • It will help your business stand out more as competitors draw down their ad spending.  
  • Your brand will be more likely to be remembered by consumers.  
  • You can negotiate better terms with media outlets when demand is low.  

We’re not advising you to splurge on lavish marketing and advertising campaigns unnecessarily, but you should not be overly cautious. Take advantage of a tanked market to increase your company’s market share and boost your brand appeal. 
Avoid Freezing Essential Hires
Understandably, when confronted with a challenging financial situation, businesses may feel pressure to restructure their workforce and slow down hiring practices. They might even postpone specific replacements to reduce overhead costs. This could end up becoming an issue in the long run.
Businesses that freeze essential hires may be at risk of:  

  • Compromising the quality of their products or services. 
  • Decreased workforce productivity due to employee burnout. 
  • Loss of income and business opportunities. 
  • Missed opportunities to hire excellent talent.

If your company is working with a tight budget, focus your essential hires on the core of your 
business needs. You may also consider hiring independent contractors or freelance talent instead of full-time employees.  

Avoid Disregarding New Viable Income Streams
Failing to adapt to change during an economic downturn will cost your business dearly. Companies should recession-proof their businesses by diversifying their revenue channels instead of putting all their eggs into one basket. Relying on a single revenue stream during economic uncertainties exposes the company to unwarranted financial risks. 
Diversification—whether offering new products or services, opening new distribution 
channels, or targeting new customers —can help businesses remain profitable in case one of 
the revenue streams dries up.
Avoid Poor Inventory Management
Mismanaging inventory at any time, not only during a recession, can lead to losing your money and even your business. One of the impacts of a recession is weak demand for goods and services, and if you’re still maintaining a large volume of inventory, it will:  

  • Tie up your working capital, making it harder to liquidate during a recession.  
  • Lead to higher storage costs.  
  • Slash your business’ profits.   

When managing your inventory, center your approach on being "lean." Review your inventory list consistently to eliminate low-demand and obsolete items, ensuring you only stock the most profitable and cost-effective products. 

Avoid Competing on Price
Price is an essential factor consumers consider before spending their hard-earned money on a product or service, especially when the financial situation is less than ideal. It's tempting for businesses to discount their prices to attract more sales, but this could soon become a huge mistake.  
Price cutting should only be considered when your products or services have a cost advantage over your competitors. Otherwise, convey the quality and value of your products to your customers. Decommoditize them, in other words. What makes them different, and what makes your business different? How can you express it in your packaging or advertisements? These are questions you should ask before “how low can we go in terms of price?”

We hope that this rundown of recession mistakes businesses make will serve as a 
playbook for you as a business owner. But protecting your business with insurance coverage is one of the best ways to ensure it is prepped for recession resilience. Learn more about our policies here.

About the Author

George Hancock Jr. is a content writer and advertiser with years of experience helping business leaders reach out to their audiences. He's worked with numerous clients in the automotive, information technology, finance, and construction industries. Having studied international business in school, he's always interested in learning about foreign places and cultures. He's also the proud dad of a biracial son. George's agency, Inkstone Marketing, became a Google Partner in 2020.