Recession: Impact on small business | Sunday Observer

Recession: Impact on small business

29 May, 2022

Recession is a frightening word for any business, large or small. It is particularly worrying for small businesses that do not have the same financial protection as large companies. In Sri Lanka, the economy is already in recession. Business activities, in general, were on a downward trend during Covid-19 and have not had adequate time to recover. The slow recovery of small business operations has been marred again by the ongoing financial, social, and political instability.

In such situations, retailers and small business owners are the hardest hit. Therefore, they are compelled to develop strategies to confront the challenges during a financial downturn. The ongoing situation is grim and likely to continue for a considerable period into the future. The reason for the strategic preparation is that unless the small business owners plan a timely response, continuation will be harder.

Managing a small business most often requires extra time for the entrepreneur. They do not have much spare time to keep track of national economic indicators. Nevertheless, the impact on their business from such a common crisis can be hard in the short run. Even for a small business, conditions such as interest rates, inflation, consumer confidence, and GDP can have a direct influence on survival during a recession. More importantly, the level of disposable income of the average consumer can be a make or break factor for a small business.


There are several steps that a small business owner can take to weather the turbulence of an economic crisis. First and foremost, they must plan to survive the current recession and then develop strategies to thrive afterwards.

If taken positively, this can be a blessing in disguise as well for an enthusiastic entrepreneur. Perhaps now is the time to be cautiously aggressive in the marketplace. Introducing promotions, initiating social media campaigns, and any other prudent sales drive can bring in extra revenue for a small business. If the strategies are planned, this is also an opportune time to create an edge over the competition. 

Any business, big or small, has something that its clients value. Most often, it is the core products or services they have provided to customers before the recession, and the same will carry them through the recession as well. While being aggressive in approach, businesses need to scale back to the products they have been selling the best.

Business owners must not introduce or support weak or inferior products because the buying power of the customers is lower. Hence, the focus should be on the products or services the business has provided to the customers or prospects previously.

However, depending on the nature of the business, they may introduce different packages to suit the exact needs of various customer segments. Simply, the core competencies of the business must be applied even during the recession without decreasing the quality of products or services.

Cash flow

The cash flow of a business is perhaps one of the most essential aspects of surviving, even in normal times. Therefore, protecting and balancing the cash flow wisely is vital. Economic downturns usually result in slim revenue and profit margins. Eventually, what matters most for the continuation of the business is the profit margin.

Hence, it is important to cut back on unnecessary spending. A good and critical analysis of existing running expenses is a good start. First, the owner should look into any extra services or resources that the business can function without for a short period until the storm passes. Funnel all the slashed expenditure back to needy spending.

However, a salient factor to remember is that many small business owners wrongly presume that marketing or promotional expenses fall into this unwanted category. From my personal experience, I can confidently vouch that marketing during a difficult time is an absolute necessity. The marketing effort is one prominent factor that takes a business through difficult times.

The suppliers and other stakeholders are also going through the same financial difficulties in a financial crisis. They, too, are struggling to get by. Hence, the time is right for the business owner to renegotiate the terms of supply rather than lose the business entirely. They will most likely agree to more competitive prices and perhaps more flexible payment terms.

Usually, in Sri Lanka, lending institutions tighten the conditions on loans during troubled times. Yet, they too need business to survive. Timely financial assistance from an outside source may provide a strong cushion for the business.

Therefore, it is a good strategy to check for appropriate business loans or funding programs. However, it is important to keep a firm grasp on the numbers and be conscious of spending if and when financial assistance is secured.

Even at the best of times, it costs more to acquire new customers than to maintain existing ones. During a recession, customers cut down on their purchases and limit their spending to essentials. Therefore, finding new customers for the business can be harder and more expensive. Hence, investing whatever amount in the current clientele may provide better results.

Therefore, business owners focus more on enhancing relationships with existing customers to convince them that the business function of the company is backing them up during difficult times.

Timely appreciation of their patronage will provide an emotionally bonded customer base. Actions during difficult times will improve customer loyalty more than at any other time. Hence, this is the best time to re-engage the customers.

In times of difficulty, business leaders must manage their business operations to prevent the ship from sinking. The leaders need support from the workers. Hence, it’s time to delegate tasks.

The leader must assess and identify the tasks that can be delegated to derive optimum productivity from employees. Usually, when the business volume is low, assigning tasks to appropriate subordinates can be productive. Delegating tasks can motivate employees to work harder. Delegating tasks can also bring out the creativity in individuals.

Another important area to check is to switch to cost-effective automated solutions that can complete recurring tasks at low financial costs. The business owner should focus on the most valuable resources rather than get involved in minor tasks or decisions.

Employees must feel valued by the firm and that their work pushes them to reach their greatest potential. Small organisations whose owners or managers are “the whole show” can absolutely benefit from encouraging staff at all levels to offer their skills rather than merely following orders, so “do what I tell you” management styles must be replaced with a friendlier approach.

This is especially true during lean times when company success is most difficult.

While it is true that economic downturns make it more difficult for small businesses to survive and flourish, it is not a given that enterprises must cut profits and shrink their market share.

Running a small business during a recession can be a daringly challenging task for a businessman. Yet, a person with strength, sense, and determination can overcome the challenges.

Economic downturns are most often temporary and blow away sooner or later. Small businesses should be agile, flexible, and aggressive to adapt to the new reality. Hence, planning and executing a temporary plan will take the business through the storm successfully.