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7 Ways Small Manufacturers Can Prepare For A Recession

The majority of small manufacturers do not have the same access to information and data that larger companies do, which means they are at a disadvantage when trying to predict where the economy is going.

Gordon Dickerson
Jul 22, 202212 Shares316 Views
Small manufacturers have a unique challenge preparing for a recession. The majority of small manufacturers do not have the same access to information and data that larger companies do, which means they are at a disadvantage when trying to predict where the economy is going. Recession planningis a way of helping you to avoid this disaster.
Here are seven ways that small manufacturers can prepare for a recession:

Start by understanding your business

The first step to preparing for a recession is understanding your business to identify risks and opportunities that will help you build a stronger foundation for the future. Here are some ways that can help:
  • Your customers’ needs will change as the economy changes, so it's important to keep track of trends within their industries.
  • Identify products and services needed most during recessions versus expansions.

Take stock of your current customers

When thinking about your customer base, it is important to take stock of who you already have. Some critical questions to ask here are:
  • What kinds of people buy your products?
  • What are their needs?
  • Are there other companies that fill the same niche as yours, but do a better job at meeting those needs? If so, how can you adjust your products or services to better cater to what customers want and need?
  • What quality of product and service do customers expect?

Identify your customers’ biggest needs

If there is a recession, many people will be looking to cut back on spending. What would they like to spend less on? If your small business is in the IT industry, it may be computers and software. Look at the current market and what is needed most by your customers: what’s missing from their lives that wouldn’t take as much out of their pockets?

Streamline operations in your production process

  • Are there any steps in productionthat could be done at a higher level? For example, if you're a clothing manufacturer, does every worker need access to a sewing machine? If so, consider having one person specialize in sewing and have others pass off finished pieces for them to work on.
  • Are there any parts of the process that could be outsourced? This doesn't have to mean outsourcing completely—you might consider partnering with another company whose product complements yours instead of competing against each other.

Improve inventory practices

  • Use lean manufacturing. This means reducing waste and using only the materials you need when you need them.
  • Cost of Goods Measured (COGM) tracking: ERP software such as Katana Small Business Manufacturingsoftware allows you to keep track of all inventories and accurately calculate your COGM. This is a key part of keeping your business’ sanity intact.
  • Use just-in-time inventory management. This means producing products at the right time and in the right quantity based on customer demand so that you don't have too much or too little product on hand.

Take steps to reduce operating costs

If you're not quite debt-free yet: now is the time to act! A recession means fewer sales, so it's unlikely that you'll be able to pay off any debts before they become due during this period of hardship. However, if you want any chance of surviving an economic slowdown while maintaining ownership and control over your company then reducing operating costs should be priority number one when preparing for a recession.

Be conservative with spending

It's a good idea to be conservative with spending while making sure you still have the resources to grow. Here are some things to avoid:
  • Don't buy new equipment or facilities. If you are running on a tight budget, don't invest in big purchases like these — it just means more debt and less cash flow.
  • Don't hire new employees. Hiring too many people can lead to higher costs down the line if the recession gets worse.
  • Don't spend money on marketing campaigns during a recession because they won't do much for you anyway
A recession can be an opportunity for growth if proper planning is done ahead of time. By making sure you have a plan in place, sufficient cash reserves, and a plan for paying suppliers and employees at the very least, your business will be able to not only survive but thrive during one of these downturns.
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