Is a recession looming? There’s talk of an economic downturn no matter which newsfeed or channel you tune to. The 2008 recession and the aftermath of the COVID-19 pandemic are still fresh in many business owners’ minds.
While no one knows exactly what the future holds, there are steps to take that can help minimize panic and leave you feeling better prepared.
Adaptability and innovation are key. During challenging times, the entrepreneurial spirit gets to shine. Depending on your industry and service offerings, small businesses that recognize the old way of doing things in new market conditions won’t help a business prosper, are the ones who come out on top. Instead of accepting the downturn for what it is, look at it as an opportunity for growth.
Focus on the long-term. The continuous goal of running a business is financial stability. The market ebbs and flows, that’s a fact. Partner with an advisor that has your long-term business financial plan and forecast in mind and can guide you in making smart decisions that allow you to buckle up and ride out the obstacles throughout this economic cycle.
Don’t make rash decisions. In the theme of sticking to long-term goals, it’s critical to make business decisions carefully and strategically. Just because layoffs are in the headlines or in the cards for your competitors, does not automatically mean you need to terminate staff. Some employers who let employees go early in the pandemic were then faced with a tough time re-hiring staff during the recovery. Unless it’s a part of your strategic plan, layoffs will instill fear, anxiety, and stress in your workforce, and the culture and morale you’ve worked so hard to build will take a dramatic hit. What will be left of it post-recession? Remember, the objective isn’t to get you through each day, it’s to thrive and prosper in the long-term.
Be indispensable to customers. It’s not just your business that’s going to face tough times, it’s your customers too. If they value your relationship and see the worth in paying for your products and services, you have a better chance of not being on their shortlist when they are making budget-cut decisions. Make an early effort to increase customer retention practices and reward loyalty. An alarming number of businesses filed for bankruptcy or shut down permanently as a result of the Great Recession or the COVID-19 pandemic. The businesses that aren’t proving they are vital to their customer, are usually the first to go. You can’t healthily make it out of a recession intact without a profitable customer base.
Talk to your CPA and advisor. This is not a loose suggestion; this is a definite first step. All the above lessons can be part of a productive discussion with your CPA. Not only do they know your business in and out, but they have also seen the successes and tribulations of many other businesses during both the good and bad times. This invaluable experience and wealth of knowledge can provide much clarity to business owners during uncertain times. Need to make spending cuts? A CPA can advise you on what areas of your business to focus on, helping you to avoid those rash decisions.
Spend less, save more. When times are going well, businesses are more likely to increase spending and make significant investments. However, if an economic downturn is potentially around the corner, it may be smarter to save funds instead of spending at this time. Not to mention, interest rates have been on the rise all year, making it more costly to obtain financing. So how can you lower expenses, minimize tax liability, avoid unnecessary debt, and increase revenue? Sounds like a conversation with your CPA is in order to put a forecast and strategic plan into place.
Monitor cash flow. The daily news headlines may trigger a feeling of dread, but if you have a real-time pulse on your business finances, it can be extremely reassuring. Being aware of your current business performance and profitability helps you and your CPA make smarter business decisions. In order to maintain cash flow during a downturn, you may also consider evaluating all of your revenue streams. Is there an opportunity to diversify and add new ones, so not all of your eggs are in one basket?
Automate business processes. At the start of the pandemic, business owners quickly learned the importance of leveraging cloud-based technology so employees could continue to work, be productive, and still collaborate while safely working from outside of the office. If you still aren’t using cloud-based apps to automate and streamline manual processes, now is an optimal time to make the transition. Not only does this prepare your business to avoid critical interruptions, but it also frees employees’ time up so they can be more efficient on productive tasks (which certainly sounds better than a layoff or “restructuring” departments). Leveraging automated technology also affords you, the business owner, more time to spend time on tasks that bring in greater sales and new business—which are crucial in event of an economic downturn.
Evolve to meet your customers’ needs. As the environment around you changes, so may the needs of your customers. Reevaluate your products and service offerings to accommodate your core customer. For instance, during the 2008 recession, the sales of luxury goods, new cars, and vacations plummeted as customers reigned in their excess spending amidst mass job loss and foreclosures. During the pandemic, adaptive retailers quickly pivoted to selling fabric face masks, hand sanitizer, and leisure clothing. Other businesses had to embrace a sudden shift to curbside pickup, heavy e-commerce traffic and transactions, and hosting webinars and drive-by events in place of in-person gatherings. The last thing you want to do is come off as tone-deaf or push spending on the production and marketing of a product or service that isn’t relevant or seen as a current priority.
Don’t wait. Have your continuity plan in place now. You can also develop a Plan B and C, should the economy not reach the recession stage. Your CPA can’t predict the future, but they can help you plan for the different paths that the future may hold.
Yes, there are many downsides to enduring another recession, but it can be a chance to start forward-thinking. Embrace technology and new revenue opportunities amidst all of the negative. Take a step back from the daunting news headlines and the day-to-day worries and make sure you keep your sights set on the strategic plan and advice from your CPA and advisor. By partnering with a CPA, your small business is given the best possibility at lasting financial stability and long-term survival.
If your business is not already shifting strategy and course to prepare for an impending struggle, the time is now. By being proactive today, your future self will be grateful in the long run. If you need assistance with preparing your business for a potential recession, contact an Alloy Silverstein advisor today.
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