5 Ways to “Recession-Proof” Your Business

When times are tough for your business, it is crucial to maintain a mindset focused on innovation. The Covid-19 pandemic brought a shock wave to the entrepreneurs and the after-effect point to pending recession. How can businesses attract customers, stay ahead of the competition, be profitable, maintain cash flow and protect its revenue streams? Here are five ways business can take to help your company survive the threat of a recession.

1. Assess your capital needs

Businesses should look into its cash reserves and assess if they have enough capital to carry them for the next 12 – 24 months or if they will require some investment. As the Federal Reserve continues to make its interest rate hikes in this environment, financing can become quite expensive. In addition, equity and credit markets tend to contract as the willingness to take on risk decreases. Investors and lenders are quite selective with their investments in these times and charge more for the risk they take on. If a SMB can raise capital or debt prior to an economic downturn, this can be a lifeboat that helps weather the storm.

Businesses should also be monitoring their short term liquidity with a 13-week cash flow plan. Using a 13-week cash flow plan, like this one built by us, can help strategize in decision making in decisions such as when to obtain capital, adjust expenses, collect account receivables, predict cash flow, and order inventory. The 13-week cash flow can stress test scenarios and help create an actionable plan when things get tight and help you stay flexible.

2. Look at Customer Behavior

The best way to recession-proof your business is to understand how customer behavior changes during inflations and recession threats. Consulting with key customer relationships actively reviewing customer analytics can help the business understand whether to scale up business up or down based on expected future demands. Once the business gets a sense of what customer is feeling, it can use promotions to attract new customers and retain existing ones.

Businesses should make sure they are constantly being innovative with what they are offering customers, to ensure that customers can’t get the product or service elsewhere. This may require some effort on your part, but it will be worth it in the end. Businesses who figure out their niche market are often made during recessions, this edge can have a compounding effect once the recession is over.

3. Assess Your Organization’s Risk Tolerance.

Every business is different and will have a different risk tolerance. No one can predict the future, but having a robust plan for contingencies can help your business weather any storm. While the business is ultimately financial, it is critical to look at the risk that impacts operations, supply chain, marketplace, industries. The graphic below has some key questions people can ask themselves to get a feel for what they can bear to live with.

4. Assess Workforce Needs

In a strong labor market, qualified workers tend to be in short supply. It is critical to look into the businesses workforce to reevaluate the roster based on needs, efficiency, and utilization. While downsizing might be the first thing on a business owner’s mind, employee churn can be highly disruptive and replacing a worker can lead to gaps in organization. A typical ramp time for a new employee can be at least 3 months which could lead to lost time, dollars and potentially customers. A good retention approach could be an option if talent is good enough and administering some creative policies can help keep employees happy. For instance, can some employees work remotely, keep an unlimited PTO policy, or have the flexibility to have some employees that want to work as contractors. The Covid-19 pandemic has proven that productive employees can work this way. The ones that need oversight might be the ones that need to be reassessed. the company’s workforce needs and consider implementing measures to save money in this area.

5. Consult your advisors

Consult your advisors – speak to your accountant, lawyer, and other business professionals to get their advice on how to recession proof your business. This is where the money your advisors will prove their worth. Lawyers can help you get out of bad contracts, adjust terms of existing ones and help protect you from any legal risks . A consulting CFO like The Value Artist can help you navigate any financial storm, optimize cash flow, identify customer patterns, help you raise capital, or even sell your business. If recession is at the top of your mind, schedule a free assessment with us here to see if you need help and how we can help you.