Most small businesses are subject to riding the tides of the ever-changing economy. The pandemic and political climate have edged us towards a recession period, and companies need to know how to protect themselves to weather the storm and have a recession proof business.
A recession is a significant economic slowdown that lasts at least a few months and sometimes years. Although experts can predict a recession, they cannot say how long it will last or how severe it will be. Nevertheless, a recession can have a significant impact on businesses.
Some tips for creating a recession proof business during an economic decline are:
Before you need extra money, secure a line of credit or other financings so that during the “dry months,” you have some available cash to keep things going.
Keep a close eye on cash flow before getting into a dire situation. You should keep cash on hand equal to at least six months’ worth of expenses.
Another way to keep cash flowing is to manage your receivables aggressively. You may need to obtain help from a collection agency or lawyer to help collect difficult accounts. Require deposits for large jobs and consider incremental billing, so you get paid as the job progresses.
Now is the time to look for areas where you can cut expenses. There are always things you can do to get through the lean times. Drop any discretionary expenses immediately and look for other areas where you can cut back. Perhaps it means getting quotes from different insurance companies or switching vendors that offer a better price.
Sometimes, it may even mean moving to a less expensive office space or switching to an all-remote workforce and closing the office to save money.
Although it’s great to have inventory available when you need it, you could have a lot of cash just sitting there on the shelves, and now is when you need to free that up.
Although you may need to push back delivery of your products, it will be worth it not to have expensive parts sitting around without any income coming in.
The ugly truth is that the biggest expense for most companies is the staff. Take a good hard look at your staffing needs and whittle down a lean team who can get the job done while your business is in a recession. Then when things improve, you can beef up your workforce again.
During a recession, it’s a good practice to cultivate strong relationships with other businesses that you can partner with and help each other. For example, you may be able to barter services for services to save money. Start to create a network of small businesses that can lean on each other during these trying times.
Following these will surely impact your business and it move towards becoming a recession proof business.
To learn more about how to protect your business during a recession, contact Interactive Accountants; we can help.