What are the five steps small businesses should follow to prepare for a recession?

If you not profitable, understand your runway. i.e., how long will your current cash last you.
Track your budget closely on a monthly basis. Take remedial action when off track
Track your cash flow carefully with a 13 week cash flow forecast. Make sure you have 95% accuracy in the 1-2 weeks out
Review all major vendor contracts. Renegotiate rates where possible. Cancel where applicable
Assemble this into a self-help restructuring plan at the ready. If the business hits a certain threshold, get ready to rip the bandaid. This will help you avoid the death spiral

What different scenarios should small businesses plan for? What methods, tools, or best practices should they use to plan for these different scenarios?

Cost of borrowing increases further
Working capital deteriorates e.g., customers pay late, vendors require earlier payments, inventory tied up longer (OR supply chain disruptions create inventory shortage)
Business environment worsens: lower revenue either through lower volume or lower prices
Finally, the upside case, if the business environment quickly rebounds, how will you emerge a winner from this scenario

What financing options might small businesses have? Are some better than others given certain circumstances? If so, how and why?

Have safety cash stashed away
Have a line of credit or revolver – but beware, banks can call this any time
Make sure your corporate credit card has sufficient capacity – if your spend increases, the credit card company may request some financial due diligence. be ready for that
Depending on your runway and cash needs, consider external investment e.g., mezzanine debt, equity injection etc.

How can small businesses best preserve their cash flow? What should they avoid doing?

See first point: review vendors, review headcount
Don’t hire aggressively
Don’t bank on external funding
Do not pursue “growth at all cost”

What common mistakes do small businesses make before a recession, and how might they be avoided?

They take action too late
They do not invest in finance, which would give them visibility on the financial difficulties in advance

Why are strong customer relationships important, and how can these help small businesses prepare for a possible recession?

Strong customer relationships are what will get you through the recession. Work with your customers. It’s better to give some concessions than lose the customer

Similarly, why is marketing important, and how can it help small businesses become more resilient in the face of a recession?

Strong marketing and sales allows you to control your own destiny in a recessionary environment. Relying only on word-of-mouth and referrals means you don’t know when / where your next customer is coming from
That said make sure you track your marketing efficacy, otherwise you may be pouring valuable cash into a black box