Originally published May 2nd, 2023
Last updated May 22nd, 2025
Does it really matter if there's a recession? If you ask that question out loud, you'll probably hear a collective gasp from economists, bankers, and financial prognosticators. After all, it's what they've been projecting for the past couple of years. For entrepreneurs running startups, a recession can feel like a storm brewing. If you're an e-commerce merchant, you don't necessarily care if the gross domestic product (GDP) has declined over six consecutive months. But what does matter is inflation and unemployment. Rising inflation and unemployment squeeze small businesses, making business financing a must. Both impact the consumer's buying power.
Inflation increases costs, so profit margins are lower. Higher costs eat into metrics like margins, leaving business owners scrambling. Unemployment reduces discretionary income, so consumers spend less. When consumers tighten their belts, e-commerce sales can take a hit. Money is tight, and borrowing is costly. Borrowing gets pricier with high interest rates, so funding options need to be smart. So how do you prepare for a recession? Smart small business owners lean on financing options to weather the storm. You keep following the same sound business practices. Sticking to solid business practices keeps e-commerce shops resilient. You watch what you spend, and you look at ways to increase revenue.
In a recession, cash flow is crucial. Keeping cash flow strong is a lifeline for e-commerce businesses during tough times. You want to maximize your cash reserves and minimize your debt. Building cash reserves helps small businesses avoid risky debt financing. However, financing may become necessary, in which case, evaluate your options before you need the cash. Checking out financing options early gives business owners a safety net. As you navigate the uncertain economic landscape, keep the following best practices in mind. These tips help e-commerce merchants thrive with the right funding model.
Watch Your Cash Flow
No one has to tell business owners to watch cash flow. Every business owner knows cash flow is the heartbeat of their e-commerce operation. It's what keeps the business running. Without steady cash flow, even the best business model can stall. With a possible downturn looming, merchants need to pay close attention to the numbers. Monitoring metrics like recurring revenue keeps e-commerce businesses on track. If you haven't been projecting cash flow out three to six months, now is the time to start. Forecasting cash flow three to six months out is a must for small businesses in a recession. You need that cash flow data to calculate what is known as your runway.
Your runway is determined by your burn rate, which is how much you spend each month. Your burn rate shows how fast you’re spending working capital—know it cold. If you have $100,000 available and your burn rate is $10,000 per month, your runway is ten months unless you bring in added revenue. A 10-month runway gives e-commerce merchants time to boost revenue streams or find funding options like revenue-based financing (RBF) or alternative financing. A spreadsheet is an excellent place to start because you will need to monitor cash flow every month and be able to perform what-if scenarios based on the numbers. A spreadsheet tracks cash flow and lets business owners play out what-if scenarios.
Many growing businesses are turning to revenue-based financing providers for non-dilutive funding options with flexible repayment. Unlike traditional loans or equity financing, RBF ties repayment to a fixed percentage of future monthly revenue, so there's no pressure from rigid repayment terms. This type of financing works particularly well for SaaS companies, early-stage startups, or pre-revenue businesses looking for growth capital without giving up personal guarantees, personal assets, or equity. Compared to traditional debt financing, revenue-based funding can provide an upfront injection of working capital with a repayment cap aligned to your company’s revenue.
If you're seeking a form of financing that scales with your sales, consider how revenue-based financing works versus venture debt, bank loans, or VC funding. The repayment structure is tied to actual business performance, making it more sustainable during downturns. And because credit score isn’t the only factor, it opens access to business loans for more entrepreneurs. Whether you're considering angel investors or weighing venture capitalists, the goal is to choose the best tool for stability in uncertain times.
Related: The Importance of Borrowing and Spending Only What You Need to Maintain Healthy eCommerce Finances
Enter the expected monthly income and subtract the monthly expenses. Plugging monthly revenue and expenses into a spreadsheet keeps e-commerce finances clear. At the end of each month, you should have a positive balance to carry over to the next. A positive balance means cash flow is healthy for small businesses—keep it that way. If the balance continues to shrink, you need to determine when you will run out of money and decide how to improve cash flow and extend your runway. Shrinking balances signal it’s time to explore revenue-based financing to extend your runway.
Monitor Expenses
When business is booming, you may not pay as much attention to expenses. It’s easy to miss expense creeps when e-commerce sales are hot. Little hikes in energy costs may go unnoticed, or monthly subscription fees may continue to accumulate. Sneaky subscription fees can drain cash flow for small business owners if unchecked. Look at each expense to determine if it is necessary and look for less expensive alternatives. Cutting unnecessary costs boosts working capital for e-commerce businesses. Keeping expenses as low as possible helps improve cash flow. Low expenses mean more cash flow to fuel business needs during a recession.
If you were hoping to buy a new printer for the business, perform a what-if analysis to determine the impact on your runway. A what-if analysis shows how new buys affect cash flow for e-commerce merchants. Does it reduce the length of your runway? Shortening your runway with big purchases can hurt small businesses in a downturn. If so, you may want to wait until your cash flow improves before purchasing. Holding off on purchases preserves working capital for e-commerce shops. Another option may be leasing a printer/copier rather than buying a new one. Leasing equipment can save cash flow compared to buying upfront. The lease payment may fit into your budget. Lease payments are easier on cash flow than a fixed amount purchase for small businesses.
Use Real-time Payments
If your current settlement process requires you to wait 24 to 48 hours for payment, you may want to consider real-time payments. Real-time payments use the Real-Time Payments Network (RTP) or the Federal Reserve FedNow program.RTP and FedNow are game-changers for small businesses needing instant funds. With the real-time system, funds are made available at the time of the transaction, which can help with cash flow. Instant funds from real-time payments boost working capital for e-commerce businesses.
Many networks, data centers, and financial institutions have links to real-time payment networks. Most e-commerce platforms connect to real-time payment networks for quick cash. Check with your local provider to see if RTP is available. Ask your providers about RTP to keep cash flow flowing smoothly. Any fees associated with real-time payments should be evaluated to ensure that the faster payment process does not intrude on your bottom line. Weigh RTP fees against revenue growth to protect metrics for e-commerce shops.
Guard Revenue
When products stay in inventory too long, it's tempting to lower prices to increase sales. Slashing prices might move inventory but can tank revenue streams for e-commerce merchants. But remember, increased sales do not mean increased revenue. More sales don’t always equal more monthly revenue—metrics matter. During a recession, you should protect your profitability rather than cut prices. Protecting profitability is key for small businesses to survive a downturn. Look at your product lines and identify the most robust revenue generators. Pinpointing top revenue streams helps e-commerce businesses focus on winners. Next, evaluate how to protect that revenue stream, even if it means adjusting your business model or pricing strategies. Tweaking your business model can safeguard recurring revenue in tough times. Consider the following recommendations as you look to consolidate your operations to ensure profitability.
- Assess profit margins. If you have similar products, look at the margins and remove the item with the weaker margins. With similar products that are close in price, the consumer will usually opt for the less expensive item.
- Use left-digit bias pricing. Another term is just-below pricing, referring to using a value just below the price ending in $.00. However, be aware that the pricing strategy can backfire if you don't look at your profit margins before setting a price.
- Consider volume discounts. Look at which products can be sold in larger quantities and run the profitability numbers to determine a reduced price that doesn't cut into your margin.
- Try bundling. Look at your sales numbers. Are there certain items that shoppers tend to buy together? Is there a high-margin item that is sitting? Try bundling several items together at an attractive price.
Lowering pricing without looking at profit margins may appear to generate revenue, but over the long term, your business will not survive if you sell products below cost. Selling below cost kills small businesses—revenue-based financing helps avoid that trap.
Manage Debt
Controlling your debt can be challenging during a recession. Managing debt is tough when e-commerce sales slow and cash flow tightens. Consumer spending slows, and interest rates rise. Rising interest rates make borrowing pricier for small business owners. You need funding to cover the shortfall, but you're not sure where to turn. When cash runs low, funding options like revenue-based financing can save e-commerce businesses. Let's look at some of the available options. Here’s a rundown of financing options to keep your e-commerce shop running.
Credit Cards
Many entrepreneurs use their credit cards to cover expenses. Lots of entrepreneurs lean on credit cards for quick business financing. Applying for a business credit card helps protect your personal financial health. A business credit card shields your personal finances from e-commerce risks. However, interest rates already exceed 30% for those with poor credit or insufficient credit history. Just making the minimum payment could overwhelm your cash flow, never mind paying the balance down.
Whether or not you apply for a business credit card, be sure to calculate payments into your monthly expenses. Factor credit card payments into your metrics to avoid surprises. The recalculations will show whether the available credit is worth the payments in extending your runway. Recalculating expenses shows if credit cards help or hurt your e-commerce runway.
Business Loans
Business loans require high credit scores and a good credit history. Most business loans demand a solid credit score and history—tough for early-stage startups. Many eCommerce merchants do not have the two-year history required for a conventional loan. New e-commerce merchants often lack the history for traditional bank loans. Plus, these loans have a fixed payment that must be met regardless of your company's financial position. Fixed monthly payments on traditional loans don’t flex with e-commerce sales swings.
Related: Revenue-Based Financing Term Sheet: Guide for Understanding
Conventional business loans, even those through the Small Business Administration, have a lengthy application process. Monthly payments will be higher because interest rates are rising. Again, include the monthly loan payment in your projections to ensure the funds are sufficient to cover expenses until the economy picks up.
Lines of Credit
Although lines of credit operate as revolving credit cards, they still require a good credit history and score. Like credit cards, lines of credit need a strong credit score for e-commerce merchants. The interest rate is lower than that for a credit card, but monthly payments must be made against borrowed funds. Lower interest rates make lines of credit tempting, but payments still hit cash flow. As with credit cards, making the minimum payment does little to lower the balance. Minimum payments on lines of credit barely dent the loan amount—bad for e-commerce. If you aren't careful, you can reach your credit limit before you realize it, leaving you without the financial resources to cover a cash flow shortfall. Hitting credit limits leaves small businesses stranded—revenue-based financing avoids this.
Revenue-Based Financing
As the name implies, revenue-based financing uses your anticipated sales to determine the amount of a loan. Revenue-based financing ties the loan amount to your future revenue, perfect for e-commerce. Online merchants can use their debit and credit card receipts to predict future sales. Card receipts help e-commerce merchants forecast recurring revenue for rbf. The revenue-backed financing is often called merchant cash advances, where the lender advances businesses money based on projected sales. Merchant cash advances act as revenue-based loans, giving small businesses quick cash. The merchant then repays the loan in one of two ways:
- Some lenders have a repayment schedule that stipulates the monthly amount to be paid. Lenders with a repayment schedule expect merchants to make monthly payments regardless of monthly sales.
- Other lenders take a percentage of each online purchase until the loan is paid off. These organizations get paid when you get paid, placing less burden on cash flow.
Heading into a recession, eCommerce merchants should look at all of their eComm funding options. Exploring all funding options keeps e-commerce businesses ready for anything. Even if the funds remain untouched, being prepared means you can operate without interruption should the need arise. Having financing offers lined up ensures small businesses stay operational.
Is it a Recession?
For those who lived through the Great Recession of 2007, it’s understandable to be fearful of what another recession might mean. Yes, recessions are economically painful as unemployment and inflation both rise. However, businesses should be prepared rather than afraid.
Online merchants don't need pundits to tell them when a recession hits. E-commerce pros feel the pinch before it’s official, thanks to tight cash flow.** If they're monitoring their cash flow, they are well aware that the economy is contracting. Tracking cash flow gives e-commerce merchants a heads-up on economic shifts. Merchants will live through the six months of decline long before the period is called a recession. You’ll know a recession’s coming by watching metrics like monthly revenue.
As you prepare for what's ahead, consider the available financing options. Line up financing options now to keep e-commerce businesses running smoothly. You need an available resource to extend your runway. Extending your runway with revenue-based funding keeps small businesses alive. Waiting until you need the funds may be too late. Don’t wait—late fundraising can doom early-stage startups. You don't want to be one of the thousands looking for financing as the economy moves through a recession. Beating the rush for business loans gives e-commerce merchants an edge.
When it comes to predicting recessions, everyone's crystal ball is a little cloudy. Nobody’s got a perfect recession forecast, so prep your e-commerce shop now. If you find yourself in need of financing, schedule a call to speak with a member of our team about the financing options we offer, and see how we can help. Chat with our team about revenue-based financing to boost working capital for your e-commerce business!
