Recession Proofing Your Business
Hoping for the Best, Preparing for the Worst
Recessions are a normal part of the economy. In fact, according to the National Bureau of Economic Research, they occur more than most people want to believe, averaging once every six years. And many are thinking that we are heading for one soon.
As business owners and executives, there’s nothing we can do to stop it. But that doesn’t mean we should sit idly by and do nothing. Instead, we should be working diligently to recession proof our businesses—not after the stock market tanks, but when times are good. Recession proofing is about proactively preparing for the next economic downturn … whenever it heads our way, rather than waiting for it to hit and then gathering the troops to figure out what to do next. By then, it may be too late. This requires advanced planning, specifically with regard to revenue preservation and increased technology needs.
As the C-Suite or Board of Directors begins to strategize with increased meetings (starting now), preplanning with respect to the following will assist in recession proofing your business:
1. Operate within the Budget
While this may seem like a given, not enough businesses actually take the steps necessary to do so. Make no mistake, this is a best practice regardless of the economic climate. Not only will it help when times are good, it may be the biggest factor in survival when they’re not. Operating within your means will put you in the strongest position possible when the economy starts to change.
2. Reskill and Cross Train Employees
There’s no doubt that you may lose resources during a recession, and clearly, not because you want to. As such, you need your team to be as flexible and resilient as possible, so that they can pivot when you need them to. However, too many employees only know one department or area, one set of tasks or activities because that’s what they’ve been trained for. Cross-training and reskilling so that they have the ability to work in various areas if needed are essential to preparing your business for the next recession.
3. Track KPIs Continuously
Whether it’s a marketing or sales or operational activity, if it is not achieving goals, it should not continue. This is about becoming the most efficient with time, resources, and funding, and that means eliminating waste wherever possible.
4. Create an Emergency Fund
Just as with personal finances, an emergency fund provides a cushion when times turn. This is especially important for small businesses that may not have access to extensive lines of credit or other financing options. By cutting unnecessary costs and relentlessly collecting all receivables, you can begin to create three to six months of a cash reserve to cover essential expenses like payroll and utilities if revenue drops.
5. Assess Risk Tolerance
Consider how much risk your business can withstand. This should be an honest assessment across the board—from leaders to staff to technology to systems. Ultimately, you want to know if they are adaptable enough to handle the stress of a recession. Can they withstand the pressure? And, if so, how much before they start to crack? Then, the biggest consideration—What can you do to strengthen them now?
6. Diversify Revenue Streams
Similar to operating within the budget, this is always a best practice. Consider how can you tap into a new market or revenue stream within your current parameters. This may be extending your geographical boundaries or offering more virtual options. It may also include assessing your current equipment to determine if it could be used for any other purpose. Simply, the more revenue streams you have, the less likely your business will be overwhelmed by the recession’s impacts.
7. Cultivate Client Relationships
This is yet another best practice, regardless of the economy, but crucial before a recession. When your clients and customers have to make tough decisions, just like you, regarding where they spend their dollars when they have less of them, they will choose the people and companies with whom they have the best relationships.
Recession proofing is not about being negative or having a “the sky is falling” attitude. Instead, it’s about being proactive by planning for the worst, so that even through tough times, you can experience the best.
Barker Associates provides strategic guidance and outsourced CFO services to companies of all sizes. We can provide the higher level of strategy your company needs to grow. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.