The indicators that a recession has descended upon the United States have started to stack up. These economic signals forecast tougher times ahead. Whether that materializes officially into a recession or not, entrepreneurs from coast to coast are asking themselves the same question: what steps can I take to protect my business from the impact of an economic contraction?
It’s an important question to pose. While it can be scary to imagine potential fallout scenarios, the difference between a company surviving a recession or being taken down by one could come down to factors within a business owner’s control. Rather than being in denial and simply hoping for the best, taking quick decisive action to buffer the negative effects of a widespread slowdown can make all the difference to a company’s future.
Decreased revenues because of the economic contraction have been compounded by inflation as businesses are facing supply chain chaos, including shortages and sharply rising costs. One thing is certain: if a weak economy cuts your revenue, cutting expenses will be necessary, and the sooner you start, the more durable your business will be. But it’s a delicate balance to strike. If you cut too deeply, you can hamper your ability to recover once the recession has passed. But not acting fast enough to curb costs can put your company’s survival in jeopardy.
Financial Deep Dive
Trimming the budget can be easier to accomplish during a downturn than in prosperous times. When the company’s survival is at stake, employees won’t balk at cost-cutting measures like they would when times are good.
A logical place to start is by conducting an in-depth analysis of your financial records, especially if you haven’t done this recently. Gather your profit and loss statements, balance sheets, and budgets. Pull copies of your bank and credit card statements. Is the information current and accurate? If not, the first place to start is updating your transactions so you have an accurate picture of what’s going on.
This self-audit is likely to be time-consuming, and it might even feel stressful and unnerving. Don’t let fear deter you. Working your way through your business financials with a highly critical eye will be worth it in the end. Remember that any issues in your business operations won’t magically disappear just because you ignore them.
Find the Flab
Now start searching for redundancies and waste, categorizing your expenses as must-haves or nice-to-haves. There will be areas to creatively trim the fat; you just have to uncover them. For example, many businesses have recurring charges for items they use rarely, or never. Do you really need all those subscriptions for magazines, apps, and software products? Or maybe you pay for memberships that aren’t being used. There might be ways to streamline accounting or payroll processing.
Perhaps you can explore how to reduce unnecessary packaging on your customer shipments. Can you purchase office supplies more effectively, such as buying in bulk or keeping a closer eye on specials and sales? On the other hand, stretching out your inventory of supplies by keeping less stock on hand can also be another effective way to preserve cash, especially if you don’t get a discount for buying more in advance.
Don’t ignore your utility costs. They can really add up. Investigate whether there are ways to be more efficient with energy and water to lower your utility bills. Inquire to see if there are more cost-effective plans for your phone services.
Continue down the list examining every line item, rooting out any weak spots. Take a hard look at every vendor you have. Research alternative suppliers in the market so you will be ready with all the pertinent information on hand if you decide it’s the right time to switch vendors. But check in with your current suppliers first. They might be willing to negotiate their prices, even just a little, to keep your business.
You can ask your suppliers if they would consider extending longer terms, requesting 45 or 60 days instead of net 30 or paying upon receipt. If you have an excellent payment history, your vendors might be willing to extend you this courtesy, even on a short-term basis. You could also try to change long-term contracts for supplies and services to short-term contracts, or even pay-as-you-go.
If your lease is coming up and you have more space than you need, you might consider looking for a new location, especially if your staff have gone hybrid or fully remote. There might be another business interested in sub-leasing part of your space. You could also consider moving to a cheaper location further away from the city center if you aren’t dependent on city foot traffic.
The pandemic-inspired accelerated shift to remote work also means there are other companies looking to get rid of their locations, so you might be able to take over their lease at a bargain price if you still need a place for employees to work. It might not be the ideal time to make large equipment purchases that have been in the works. You could consider delaying these capital expenditures until the economy recovers. But new technology and increased automation might pay for itself by boosting productivity, so include those calculations in your assessment.
Perhaps the most important asset for entrepreneurs to have during a recession doesn’t cost anything at all: a positive mindset. Panicking won’t help. And tough times can be an opportunity in disguise. Businesses that survive a recession can emerge leaner and stronger and ready to grow when the economy eventually recovers.