It’s easy to overlook small problems when things are good. This basic tenet of human nature applies to just about everything: work, relationships, etc.
But it bears particular weight when discussing the economy. Strong economic conditions can obscure problems lurking below your business’s surface. When the economy starts to slide, these problems appear all too quickly.
Here are 7 recession-proof strategies you can apply to your business and get ahead of this economic volatility while keeping your business afloat in every economy:
1. Work toward healthier financial records
During boom times, it’s easy to overlook less-than-perfect bookkeeping practices. Records fall out of date, reports aren’t run as often as they should, you lose track of key performance indicators. This can lead to situations where issues go undetected, and they sometimes remain hidden until times get tough.
Audit yourself on basic bookkeeping practices. Review your accounting software and history of record-keeping to see how well you’ve done. How quickly are you able to generate reports at the end of each month? This will pay off now by and prepare you for a future when verifying your financials to outsiders is necessary.
2. Be ready to strike
From an economic standpoint, a recession can be considered a crisis. But crises can also be opportunities. You’d be surprised how many financial prospects appear during economic downturns. Companies restructure, assets get sold, and the financial landscape changes.
Be ready to take advantage of these variables by having a lender-ready plan in place. You can then raise cash quickly. You may not use it, but opportunities don’t last long. You can be ready when they appear.
3. Develop short-term sales goals
It’s no secret markets become more volatile during recessions. Companies go under and investors sell shares.
Focus on your short-term sales goals—ideally no longer than 30 days out—and their associated activities. The idea here is to keep your business running on goal-driven activities while being realistic about your economic prospects.
4. Use discipline with expenses and cash flow
Discipline is good practice for any economy, but it bears particular importance during downturns. People aren’t spending as much during recessions, so businesses should rein-in expenses.
Does your company have a thorough accounting of cash flow and money coming in? How about your expenses? Is your burn rate as sustainable during an economic downturn as it is during a boom?
Again, this comes back to bookkeeping and record accuracy. You’ll need to get a handle on key performance indicators to help weather the storm.
5. Consider new vendors
You don’t want to sacrifice a good business relationship just for the sake of a slightly lower price. But during recessions, it’s reasonable to audit vendors and suppliers to see if they’re offering a competitive experience. Compare their prices against others and review their history of service. If they aren’t up to snuff, don’t be afraid to look elsewhere. You’re the customer and they need to earn your business just like any other service provider.
6. Get a handle on your supply chain
Even for small businesses, supply chain is a common area of cost inefficiency. You likely have multiple vendors across purchasing, warehousing, and distribution. Each vendor’s performance affects the health of your supply chain.
One of the other big areas of supply chain inefficiency is inventory management. Do you have an efficient system for purchasing? How much inventory do you have tied up in-transit? These issues are common culprits for lost capital, so fine-tune these processes as early as possible.
7. Tighten collections
It’s common for businesses to be flexible with collections, especially for long-term client relationships. Past-due collection periods anywhere from one month to three months are common when the economy is stable and predictable.
But during recessions, be a little less flexible with your collections. Rather than letting your clients get away with long-term collection schedules, regenerate your cash flow (and correct slow-to-pay habits of delinquent clientele).
Good Habits Recession-Proof Your Business
While creating a recession-proof business isn’t easy, financial management during a recession really isn’t so different from during an economic boom. Much of it comes down to following best practices and knowing what’s happening in your company.
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