Preparing your business for a recession is no joke. Oftentimes, preparation is key to success during lean times for a small business. More importantly, it will help you stay competitive. Don’t wait to start preparing as markets can be volatile and can recede without warning. Implement these ten steps to prepare your business for a recession.
This is for educational purposes only. Consult your accountant before using this advice.
Manage cash flow
At the end of the day, cash is still king. The best way to immediately prepare your business for a recession is to know your exact cash flow. Managing your cash flow and updating your bookkeeping with a CPA can help you store away some money for lean times, regardless if a recession is brought on by COVID-19 or something else. You can be prepared by having cash on hand to pay your employees, bills, expenses, and other operating costs. It doesn’t mean you won’t have any problems but you will have prepared your business for a recession. A CPA can also help you plan for when cash flow is tight.
Have multiple sources for a supply chain
One of the best ways to prepare your business for a recession is to have multiple supply chains located in different areas. This does not mean you need to stock up on products. Instead, be able to have supply chains that are not just located in one country. Also, try to have on-demand shipping; that way your shelves won’t be stacked with items you can’t sell.
Have several different vendors in other countries that you can pull from. Having only one supplier can be damaging to your business as we have seen with countless examples. For instance, Hurricane Maria caused a shortage of IV bags when it hit a factory in Puerto Rico. This caused hospitals to scramble to find another supplier. If you are a small business, it’s important that you have an emergency plan set in place. While others scramble to recover, you will have access to the products you need.
Stock up on necessities
You shouldn’t necessarily stock up on all your products to prepare your business for a recession. Rather, you should stock up on the necessary equipment and products to keep your employees safe. This can include masks, eye protection, tools, and other items. During a time of recession, these items can be hard to find and are often overpriced. Stock up now to prepare yourself instead of being price gouged when you’re already strapped for cash.
Cut unnecessary spending (use a CPA)
Cited in just about every article about preparing your business for a recession, cutting the fat from your business is going to help you survive in the lean times. The best way to go about this is to use a CPA to help your business. Having an accountant can not only help your business succeed during a recession, but also grow! They can help you plan how to operate on a smaller budget and what is most necessary to your business. You won’t be left in the dark about how to cut your expenses most effectively. Importantly, they will also help you make sure you don’t cut vital services that help you stay afloat.
Invest in new sources of revenue
Another way to prepare your business for a recession is to have multiple streams of revenue. That means you need to offer new products or services in a different area of your business. Don’t do this if you are in the middle of a recession. Instead, make this transition when things seem to be at their best. A CPA can help you identify new areas of growth and where you can take your business. Your financial advisor can also help you secure new funding for this line of business.
Pay off debt
During a recession, debt is only going to make your job harder. Not only does that make you strapped for cash, but when the recession hits, debt compounds itself. You start looking for ways to avoid payment. You become hard-pressed to find new sources of revenue. Any business will want to pay off debt as soon as possible when they are no longer in a recession.
Form a business partnership
If you and another company offer complementary services and can become a one-stop-shop then it may be time to look at forming a business partnership. Forming a partnership can give you more capital to work with. In addition, you are able to offer more services at lower pricing which can attract customers even during the worst of times. However, you and your partner need to have clear communication about how duties will be split. A CPA can help guide the merging process, and set out a clear business plan going forward. Once you have that clear plan, and only then, should you move forward.
Reward loyal customers
During a recession, it can be hard to attract new customers. If you have repeat customers or loyal customers then you should reward them. Offer them discounts or better servicing for their money. Establishing that personal relationship by letting them know that you care about their needs will help them remember you, even during stressful times. Eventually, they’ll recommend your business to others and you can have even more repeat customers. The goal is to reward customers who put their hard-earned dollars into your business. That way when the going gets tough, you have a reliable client base to fall back on.
Look at your inventory
We’ve already mentioned inventory several times, but it’s an important factor to stress. Having items on the shelf isn’t preparing your business for a recession. In fact, it’s costing you money. Optimize your inventory to move products quickly and effectively. A CPA can help you make the best decision in lowering your purchase levels. You cut costs by not maintaining so many items. Money won’t be tied up in products that aren’t selling.
Shore up financing from the bank
We all may need a little help from time to time, especially during a recession. The same goes for your business. Asking for a bank loan or raising funds through your bank can sometimes be your best bet to make it through a hard year. In order to ask for the right amount, and put yourself in the best position to take out a bank loan, use a CPA. A CPA can help get your documents in order and make sure your credit score is where it needs to be. They can help walk you through the process of asking for a bank loan and paying it back. Don’t go in blindly to the bank. Put yourself in the best position to negotiate.
Thinking about how to prepare your business for a recession but don’t know where to turn to? Reach out to us today to help recession-proof your business.
