A recession is detrimental to business. Customers usually spend less, resulting in fewer sales and profits. Also, if customers and suppliers find it difficult to make timely payments, your cash flow may suffer. Not to mention, lenders may tighten their belts, making credit much more difficult to obtain. Whatever the economy, one of the best you can do for your business is to prepare for occasions such as a recession.
What is a Recession?
A recession is a significant drop in economic activity that spreads across the economy and lasts for more than a couple of months. Recessions can seriously affect society and cause financial difficulties for individuals and organizations. While economists have gotten better at predicting recessions, they haven’t gotten any better at predicting their severity and length, making it difficult for business owners and individuals to plan ahead of time. It is as if an inevitable storm is going to hit. Weather specialists know the day it’ll reach us but have no idea how bad it will be. Will there be thunder? Lighting? Floods? And so, to protect our homes, we install drains, build walls, and strengthen our roofs. The following tips –your drains, walls, and roofs– are your business’s defense against recession.
Manage Your Cash Flow
Managing your receivables is one great way to protect your cash flow. Having legal contracts regarding late fees reduces the risk of unpaid outstanding balances. Consider collecting deposits in advance for high-paying jobs to reduce the risk of non-payment. While it may appear okay to allow loyal clients to fall behind on invoice payments for a few months, staying on top of these helps you prepare. Setting up an emergency savings fund is another example of good cash flow management. Try to keep three to six months’ worth of expenses in an emergency cash fund. You never know how long a recession could last, so it is better to prepare for at least a few months.
Reduce Unnecessary Expenses
Cut off all the extra fat from your expenses. Budget in your necessities first and some goodies, but only a few! You want your business to be fit and lean, ready to take the hardest blow from the toughest scariest recession.
Secure Financing Before You Need It
Try to get ahead of the game by getting loans before you actually need them. When your company’s profits are strong, you’re much more likely to be approved for a business line of credit. So do everything you can to qualify now because it will be near impossible to be approved if you apply during a recession.
Strengthen Your Team
Remind your team why they chose your company and ask for their commitment to the path forward, despite the ups and downs you’ll soon face. Employees are more likely to stay through challenges when they feel connected to a larger purpose.
Secure Your Business
If you have a business, you need insurance. Unless you are willing to risk everything, out of unwillingness to pay a premium, you are going down the wrong road. The correct path would be to purchase coverage and be one step ahead of any accident, disaster, robbery, and such coming your way. Without business insurance, you may have to pay out-of-pocket for costly damages and legal claims against your company. Depending on the incident, this could be a financially devastating scenario. If you’re not sure where to get started well you’re in luck, we happen to specialize in business insurance. Contact us to get your business coverage.
Financial difficulties can depress you, so it’s important to remember that even in the darkest of times, there is light, and where there is light, there is opportunity. Consider new products or services that you can promote to expand or diversify your offering without increasing your business expenses! Don’t worry. With these tips, you and your business will survive any recession!