7 Ways to Prepare Your Business for a Recession

1. Cash Flow

If you aren’t tracking your cash flow, there’s no better time than now to start. Make sure you’re using a cash flow forecaster so you can see where your cash is and get a clear picture of the health and safety of your business in the coming weeks and months. If you don’t have a cash flow forecaster, click here to visit our website to download one. In a recession, the goal is cash conservation, cost cutting opportunities, and not paying for things you don’t need. Make sure to look at your cash flow for the rest of the year and into 2023.

2. Establish a Line of Credit

Now is the time to lock in a line of credit with your bank especially with rising interest rates. Even if you feel like you don’t need one, still apply because interest rates are going up and if you need a line of credit in the coming months, the interest rates will most likely be higher than they are today. The ability to get financing may also become more challenging or complex.

3. Employee Wages

Inflation is pushing business owners to assess the salaries and wages of their employees to see if they need to increase them. Instead of raising wages, see if there’s a way to offer your employees more perks that are less expensive like establishing a student loan repayment program, increasing health care benefits, etc. These are simple adjustments you can make and there’s no payroll tax associated with them. Keep in mind that with inflation, health care premiums will likely be going up with next open enrollment period. Also, don’t overstaff. Now is the time to make sure your business is running as efficiently as possible.

4. Understand Your Customers

In a recession, it’s important to understand your customers and who will be most impacted. There is value in grading your customers on an A, B, C scale as you don’t want to sell to those customers who you’re not sure will be able to pay you. Evaluate and see if you need to sell to them or how you can protect yourself either through a security deposit, stop order limits, etc. Make sure you’re protected on the front end. Revise your customer agreements so you’re not the one pushed to the back when push comes to shove.

Also, establish good relationships with your customers and vendors. In harder times, the vendors you have good relationships with will be more lenient and your customers will want to pay you.

5. Keep Your Cash

Right now, is the time not to overpay on distributions, keep the cash instead. If you’re price sensitive, have your plan B and know where you can go to get cash as you’ll want to have cash readily accessible. If you have outstanding loan balances, don’t make extra or larger loan payments to pay them off. Instead, hang onto the cash and make the minimum payments for now.

6. Inventory

If you have the cash on-hand, consider purchasing excess inventory now at a lower price point. You can build your inventory up, but again, make sure you’re in a good cash position first.

7. Be Honest & Proactive

Be honest with yourself on how the business is performing and where you’re headed. Now is the time to lock down your systems and processes so you can deal with the challenges for a recession in the future. Also, be proactive and get everything figured out today. If not knowing where your cash is was fine 6 months ago, 3 weeks ago or even today, it’s not going to be in the future. Have those honest conversations with your team now and be proactive so you can best prepare for a recession.

Conclusion:

It can be difficult to predict the timing of a recession and the impact it will have on your business. With these 7 ways to prepare, you can tighten your business up now to prepare for the future. Look at your cash flow, establish a line of credit, examine employee wages, your customers, hold onto your cash, purchase inventory at a lower price point and finally, be honest and proactive. If you need help preparing your business, reach out to us for a free consultation today!