Advisory
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5 min. read

7 ways to prepare your business for a recession

recession-preparation

It’s better to be prepared and not need it, right?

It’s always a good idea for a small business owner to be prepared for the possibility of a recession. It won’t be easy, but with some forethought, you can weather the storm with your business intact.

Here’s a few quick tips to get you started.


Maintain cash flow

This sounds obvious, but it’s worth mentioning: keep the money coming in. You’re probably already trying to keep your cash flow healthy, but during a recession, it’s doubly important.

In normal circumstances, you might sacrifice a bit of cash flow now for an improved situation in the long run. Hold off on that for now. Focus on products and services that are consistent moneymakers and keep up quality and customer satisfaction as best as you can. You might even want to offer payments plans for customers struggling to pay up the full amount. Steady income is better than an unpaid invoice.

Cut costs

Once again: obvious, right? As a business owner, you always want to minimize costs where you can. But during a recession, this takes on a new urgency.

Of course, you want to be cutting costs in a way that doesn’t unduly affect the quality of your products or services, or the health of your staff. Try talking to your employees, whose proximity to production might offer insights on how to cut costs without too much additional fallout.

Take a look at your “low hanging fruit,” the underperformers on your team or the initiatives that aren’t paying off. But be cautious: just because a team member isn’t performing as well as some of their peers doesn’t mean they’re easily expendable. Laying off even your least productive staff can impact the morale and productivity of the rest of the team. Try to avoid overloading your employees.

If necessary you can also defer payment on your own salary. This might not be the most fun option, but it may be necessary for the long-term health of your business.

Kick costs down the line

Some costs cannot be cut but can potentially be delayed.

We mentioned above why you might want to accept payment plans from your clients – a little bit of cash flow goes a long way – and your vendors and landlords may be in the same position. See if you can defer payments and work out a payment plan. Vendors like when you communicate with them, so it’s worth a shot!

Of course, you don’t want to push it so far that you get kicked out of your premises. Don’t try anything crazy here, just see what your options are.

Secure your capital

Working capital is the money your business needs in the here and now to keep itself going, whether cash reserves or available credit. Making sure this doesn’t run dry is key to weathering a recession.

Credit can be a big part of maintaining working capital. However, it’s important to only use credit to finance things like inventory. Don’t rely on borrowed money for the core operations of the business.

Be aware of accruing interest as well. The last thing you want is to survive the recession only to get buried under unpayable debt.

Think about the long-term team

This is a tough one, which is why it’s good to start thinking about it (and coming to terms with it) ahead of time. To prepare for a recession, it’s always good to have your next 3-5 terminations already in mind.

When the economy slows down, layoffs become an unfortunate possibility, and that’s an emotional time for everyone. But if you’ve made that decision in advance, you can focus on being pragmatic in the moment.

It’s also a good idea to identify the next 3-5 new hires you’d like to make to expand the business. That way, when things are going well, you’re ready to get ahead.

Maintain the essentials

During a recession, some things need to change for your business to do well. But there are a few things that shouldn’t change.

Make sure you’re not neglecting anything that’s essential to the survival of your business. Your top employees that keep the place running need to keep getting paid. Your attorney, your CPA, and any other key advisors also need to keep getting paid.

Communicate

A lot of things are up in the air during a recession, and that makes clear communication more important than ever.

Your employees will likely be as stressed about the recession as you are, and (as we mentioned earlier) may have ideas about how to handle things that you haven’t considered. Try scheduling regular one-on-one talks with your team members to check in. You should also keep their mental and emotional health in mind. Besides being good for productivity, it’s also a cool thing to do.

You should also maintain any other relationships your business needs in the long term. Key advisors or vendors need to know you’re in it for the long term.

Bottom line

You can’t prepare for every single possible event, but taking some basic steps now can help in a major way if a recession comes. Overall, the key is to protect the core of your business and keep it alive long enough to emerge on the other side.

Need help making any other big plans for your small business? Schedule a call with DiMercurio Advisors and we can help you set up your business for long term success.

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