Inflation rose to a whopping 6.7% in March of 2022 which is the highest rate of inflation since January 1991. Even during the financial crisis of 2007-2008, we didn’t see rates of inflation this high. Interest rates are also hiking up fast like it’s 1980 all over again. However, for the time being, we’re still kind of lucky, the economy is still relatively strong after being propped up with trillions of dollars of pandemic support but that could change quickly bringing with it the possibility of stagflation. If you haven’t of this before, stagflation is when the economy is shrinking, unemployment is on the rise and prices for goods and services are still increasing, yikes!
So what should you do now? Wait around, business as usual, see what happens? No, definitely not, but it’s also not the time to panic. With some careful planning and a bit of leg work, you have a good chance of getting through. To help you out, here are 6 tips to help protect your business against the looming recession.
Natural to Play Defense, but should you Play Offense?
Recessions inevitably force many businesses to close. The weaker, unprepared ones are typically the first to go. While this is sad for those business owners, it also provides your business an opportunity remembering that recessions aren’t forever. If you’re smart about it, you could come out of the recession a bigger, stronger business that’s more competitive. As a caveat though, it can be tricky to pull off and certainly is more risky, but if you’re willing and able, consider things like the below examples in your strategy:
Keep close tabs on your competitors. See what they are doing promotions wise, social media communications wise and what their customers are saying through reviews. You can often get insights into a business just based on what shows up online and this business intelligence can be useful.
Every business owner should know how hard its been finding great talent the last two years. If you are able, start looking for great new talent, especially if you can keep them utilized in productive projects or profitable ways.
Start looking for bargains. This could come in the form of machinery, prime business locations, or discounted services or goods.
Defense! Review Your Spending and Costs
Sadly, many business owners may have expected and hoped for a bigger bounce back once all the pandemic restrictions were lifted. Unfortunately, many industries didn’t get their fair share of bounce back and now everyone’s suddenly already talking about a recession? It sucks, but as business owners and entrepreneurs, we must push forward and now is the time to once again review spending and costs. This review should happen regardless of whether you want to play more offense of defense.
Plainly and simply, make sure your spending is appropriate for your business and the expenses are required to continue your operations. You should be assessing expenses from the lens of return on investment or in other words, how does this cost contribute to profitability? Some things to keep in mind:
Focus on your variable spending and figure out which costs can be reduced or eliminated.
Get an understanding of what costs must be paid to ensure your business continues its operations.
Don’t be afraid to make hard decisions whether it is reducing your staffing levels or reducing some ‘nice to have’ goods / services. Know that you won’t be alone, many businesses will struggle.
Defense! Revise your Budget
As part of your spending/cost review, reassess your budget for the next 6 to 12 months, if you don’t have a budget, make one. Even in good times, you should be reviewing and revising your budget regularly, in recession times, this is critical. A good budget will ensure you know how much funding you need to cover your upcoming expenses. In case the economy goes sideways and sales / revenues are down across the board for your business, you want to make sure you can ride out the recession until it bounces back. In addition, if you’re thinking offense for this recession, a budget is just as important, don’t forget this critical step.
Offense and Defense! Apply for Credit, Be Pro-Active
Every business should have some sort of cash reserve in hand, you know, an emergency fund. If you don’t have one, or maybe you do have one, I always recommend being proactive by applying for a new loan and/or increasing your credit with your current financial institution. Whether you want to play more offense or more defense this recession, please know that banks are terrible. They will lend you money when you don’t need it, but they will absolutely turn their backs on you when you actually need it. Another reason to be pro-active is that as the economy shifts, financial institutions will be increasingly scrutinizing credit to minimize their potential losses, it’s only natural to them unfortunately. Last word of advice here, any credit you do get and use, the funds will need to be paid back, make sure you plan for that and spend the funds wisely.
Offense and Defense! Get some Grants!
During the Covid 19 pandemic, there were so many grants available that I seriously hope you got your fair share. Maybe you did and maybe you didn’t but please note that in times of recession and economic uncertainty, the government and other agencies have always put out programs to support businesses and jobs. Make sure you are following the news and keeping a close eye out for opportunities. If you are planning more offense during the recession, grants that help with purchasing new equipment, infrastructure, hiring employees or other opportunities are bound to pop up. If you’re planning more defense, keep an eye out for grants that support your employees or offer you business credit.
Defense! Review your Customers’ Credit
Last but not least, review your customers’ credit worthiness and re-assess their credit limits. While you don’t want to turn away sales, a sale that is ultimately uncollectible will really hurt you. This is especially important when you are relying on a few larger customers as the inability of one customer to pay your invoice can have a drastic impact on your cash flows.
Example questions to consider:
Have you ever asked questions about a customer’s credit worthiness, especially a new one? During a recession, this is less awkward so don’t be afraid.
Is your customer prepared for a potential recession and has it reviewed its own financial contingencies if the economy changes? Have you checked them out a bit online?
How reliant are you on your customer to pay their invoice on a timely basis? How many losses could you absorb?
Depending on your type of business, you could consider requesting a retainer or deposit from your customer / client to ensure you are getting paid for your goods / services.