Economic Downturns

Prepare for Economic Downturns: Because Ignorance Isn’t Bliss

Prepare for Economic Downturns:
Because Ignorance Isn’t Bliss

As a business owner, you know that success isn’t just about enjoying the good times. It’s about being ready for anything that comes your way, whether that’s a packed Friday night rush or a sudden economic downturn. As we know, business ownership is a roller coaster!

But let’s be real; it’s easier to get caught up in preparing for the good times. So, how do you prepare for the bad? That’s where understanding what an economic downturn looks like and how to brace yourself for it when it inevitably occurs. Don’t let unexpected events catch you off guard; get ready to weather any storm with these tips.

It’s the Ebb and Flow

With inflation on the rise, prices for everything from rent to labor to transportation are skyrocketing, and it’s enough to give even the most seasoned entrepreneur a headache. But it’s important to remember that economic uncertainties come with the turf, and a little prep will go a long way toward making it through a downturn unscathed.

Show Me the Signs

Aside from news headlines blasting “signs of recession,” there are other key factors you can use to help determine if we are headed toward an economic downturn.

  • A slowdown in business and consumer spending. People naturally may slow their spending due to uncertainty, lack of available funds, or because of inflationary pricing.
  • Spike in unemployment. Some larger corporations (and some small businesses, too) will quickly reduce their workforce to react to a downturn in the economy.
  • Slowing of manufacturing activity. This can happen because people have less money to spend, and inflation increases costs in manufacturing. If prices increase, retailers buy fewer items in anticipation that consumers will not be spending as much.
  • Change in investor attitude. Consumers are investing more long-term than short-term because stocks tend to offer below-average returns when the economy slows.

Now if all of these come to fruition and we are seeing a steady decline in the economy, can we call it a recession? In order to call it a true recession, experts advise there will be “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

We can probably check a few of the above boxes today, so let’s take a look at some ways to prepare your business for what may come.

Build That Bunker

Okay, don’t actually build a bunker, but let’s get prepared! Here are the top four ways to prepare your business for a potential economic downturn.

  1. Establish a Cash Reserve. Lending tightens in a recession, so borrowing may not be possible, and you would then need to rely on your cash reserves. Figure out the run rate (what it costs to operate on a monthly basis without any extras/luxuries) and try to have 4-6 months of that available. This doesn’t necessarily mean it’s all in cash – it includes available room on your line of credit if you have one.
  2. Actually, just hoard your cash! Cash is king in a recession. If you have debt, now is not the time to pay it down. Put major business investments on hold until you’re comfortable that you’ll get an ROI on the cash you’re using.
  3. Diversify Your Customer Base. Take advantage of networking and investigate partnerships with other businesses. Just because you’re a small business doesn’t mean you can’t partner with a big one! Partner up and expand your consumer reach. Social media platforms can also help expand your customer base.
  4. Reduce Expenses. What can you live without? What are the “have to have”s of the business? Determining this upfront can help you determine what expenses can be cut if needed. Other ways to cut costs could include negotiating better rates with current suppliers and putting hiring on hold.
  5. Maintain Strong Communication. Whether with your employees or stakeholders, it is important that you communicate confidently. Staying honest and giving accurate information can prevent fear or premature turnover. You can also get your people involved in difficult decisions, keeping your force more unified. Your employees help run the day-to-day and often have great ideas.

Don’t Stop Here

By understanding what a recession is, how to spot the signs, and how to prepare accordingly, you’ll be better equipped to navigate any storm. It’s important to remember that building strong connections with other business owners and seeking out support from friends and family can go a long way in helping you weather tough times. Whether you’re preparing for the best or the worst, having a solid plan in place will give you the confidence and resilience needed to succeed in any economy. So, stay calm, stay focused, and keep pushing forward. You’ve got this.

If you’d like to learn more about out outsource accounting, or CFO solutions..hey we’re just a click away!

Contact Us
Skip to content

Share This

Copy Link to Clipboard