7 Ways Entrepreneurs Can Inject New Capital Into Their Business During a Recession

Recessions are an inevitable part of the market cycle, and there's no denying that they can be frightening for consultants and the companies they work with. Regardless of the size of the business, a recession can pose a serious financial risk. As consumer spending declines, so do business revenues and profits.

This can create a precarious situation. Businesses may be more inclined to view B2B services as an unnecessary expense. This is especially true when they have to cut their budget.

In addition to ensuring that their services can become truly essential to their clients, to survive these times of economic uncertainty, entrepreneurs must find ways to inject new capital into their business. By expanding income options, you can dramatically increase your chances of long-term success. Doing so will ensure that a decline in one area doesn't completely wipe out your business.

Injecting new sources of capital doesn't just help you survive a recession. It also allows you to deliver greater value to your customers so you can thrive over the long term, no matter how the economy changes.

Why injecting new capital should be a priority

Entrepreneurs who depend on a single source of income can expose themselves to significant financial risks, even during relatively stable periods.

In their article "Diversification Reconsidered" in the Journal of Social Entrepreneurship, Peter Frumkin and Elizabeth K. Keating explain: "Researchers in business and nonprofit organizations have long argued that by establishing and maintaining multiple streams of funding […] organizations are able to avoid excessive dependence on a single source of income, stabilize their financial situation and thus reduce the risk of financial crises.”

Few things are more likely to disrupt your customer relationships than a recession. Changes in their financial situation (or yours) may lead to requests for renegotiation of contracts. This might lead them to obtain similar services from a cheaper provider.

Entrepreneurs who focus on a single type of service or a small group of customers are most at risk. Suddenly losing most of your customers to a recession can be catastrophic. This could cause you to run out of money before you have had time to react to the situation.

Diversifying income and finding new ways to inject capital can help mitigate these losses so that even if you have to tighten your budget, you will at least retain enough cash flow to avoid bankruptcy.

> Options for finding new capital (to withstand a recession)

Now that you understand the value of making your business more resilient to the impact of a recession, you may be wondering where and how to start. The following ideas are some of the best ways to inject new capital (or better conserve the cash you already have) to boost your income, even when the economy looks grim.

1. Adjust your rates.

Perhaps the simplest thing an entrepreneur can do in the midst of a recession is to adjust their prices. After all, in times of rising inflation, your own costs of doing business can increase significantly. If you continue to charge your customers the same rates, your cash flow will suffer as your profit margins shrink.

Of course, in a recession, a significant rate hike might be enough to induce some customers to stop doing business with you. As such, this option should always be approached with extreme caution. Rate increases or decreases may need to be addressed on a client-by-client basis to balance risk and reward.

If you decide to increase rates, let your customers know about the pending changes in advance with a rate increase letter. This letter should be clear and direct, explaining what the increase will be and when it will take effect. It must also provide justification for the rate increase (such as an increase in your own operating costs). The letter should also express gratitude for the support of your customers.

There is no guarantee that you won't lose customers if you increase your rates. However, if you are able to replace them with new customers at the higher rate, you will be better able to stay ahead of inflation.

2. Use a referral program.

Referral programs reward existing customers who refer family members, friends or colleagues to use your products or services. Reward options can include offering a current customer a discount on their next bill after...