Preparing for the Possibility of a Downturn
Will there be a recession? The future is filled with uncertainty. One of the best ways to provide comfort and control is to start planning now, knowing you may need to adjust as the situation unfolds.
These are actionable steps you can take right now to prepare yourself and your company for an economic downturn.
Assess Your Cash Flow
How much are your expenses each month? What happens if your biggest client doesn’t pay for three months or goes out of business? Do you know how much cash you burn through each month?
Check out your P&L for one month and look at COGS+ total expenses. This will equal your cash out for the month. Next, review a few months and get the average amount you are spending. This provides a quick snapshot of cash out for the month.
Dave Ramsey suggests having three to six months of expenses in the bank for personal use. We suggest nine to 12 months for a business.
Examine Your Industry
What will sell better during a time when people and businesses are thinking about saving money? Think of do-it-yourselfers (DIYers)—what are the tasks they’ll be unwilling to do themselves and opt to pay for? Can you expand in that area?
If you are an electrical contractor, people may be less inclined to put in new electrical work, but they might be willing to spend money on repairs. You could offer a ‘check up’ to see what needs to be updated, like a new electrical panel or replacing outdated lights with LED lights to save money on energy bills.
Is there a service you provide that typically generates more interest during a recession? A colleague of mine prepares taxes. Her tax business increased dramatically in 2008/2009 because taxes are one of the things people don’t want to DIY—the risk is too high. Increase marketing for that service to reach potential clients now.
Is there something you can create now that will provide revenue during a recession? People are more likely to seek information and become DIYers. Can you provide fee-based courses that will educate this audience in your area of expertise? Do you have marketing that will drive people to buy it? Do you have room in the budget to pay for the marketing?
Coming up with a plan for creating another stream of revenue is a good idea, even if a deep recession never happens.
Review Revenue and Expenses
Can you increase your fees without pricing yourself out of the market? Can you increase your services with current clients?
Monitor your topline indicators for revenue including leads, sales pipeline, etc. This will give you a better picture of when slowdowns could be coming to affect revenue. Create plans with your leadership team of what to do if a revenue stream slows, and revisit them to make changes as needed.
Finally, scrutinize your expenses. Is there any way to reduce or eliminate costs?
Communicate the Plan with Your Team
Let your team know what measures you will take and how they can help, or if these measures will impact them. If you have to lay off employees, do it quickly and with dignity. Frequent discussions with employees to keep them updated will help you avoid rumors and speculations on the health of the company. It will also give your team a sense of security and trust.
The way you treat people—your employees, customers and vendors—during this tumultuous time is what they’ll remember. Make sure your decisions are aligned with your mission and vision and values. You will get through this! We all will. We are stronger together.
Amid the uncertainty, are you looking for peace of mind that your business finances are in order? Reach out and let’s talk more about how we can help you prepare for the future.