How to Recession Proof Your Small Business

Financial experts are forecasting a recession is nearing, with many banks rapidly increasing interest rates to combat decades-high inflation. This action could lead to a prolonged economic downturn that can last for months. However, it is also an opportunity to review your business and improve.

We've outlined a few strategies to help you determine how to recession-proof a business. It will also show you how to keep your company strong regardless of the future.

Seven strategies to make your business more resilient to recession

1.Make a cash flow forecast

Cash flow is critical in a recession. A cash flow forecast can help you stay in control of your finances, provide financial information that you need to plan for the future, and identify areas where you can pull back or push to adapt to economic conditions.

You need to be aware of your cash flow.

• Make sure your accounting is current and your financials are timely.

• You can create a rolling cash flow forecast that you can adjust monthly or quarterly.

• To identify potential problems, experiment with various cash flow scenarios

It helps you to develop good cash flow habits when things are going well. For example, ensuring customers pay on time with a system to keep receivables under control.

2. Perform scenario planning

Instead of waiting for your business to go under, create an action plan to get ahead. This plan will help you be prepared in case the worst happens.

However, you should experiment with different scenarios to determine how your business can be recession-proofed.

• A slowdown in the economy can have a devastating effect on your entire business

• Reduced revenue streams

• A rise in key material prices

To determine where revenue drops might be offset, create a financial forecast for each scenario.

It is also a bright idea to list tasks you need to complete if business slows down. This list could include new product ideas or marketing to your most loyal customers.

3. Establish strong client relationships

Building solid client relationships in good times will help you retain more customers during tough times. You'll also be more likely to get positive reviews and referrals.

It is almost always easier and cheaper to keep existing customers and to get repeat business; this can be done by offering exceptional customer service and delivering on your promises.

To help you avoid a recession in the near term, focus your efforts on long-term customers and not on attracting new clients.

4. Take into account multiple revenue streams and target markets

Various sales channels should be a top priority when you want to recession-proof your company because it will be easier to keep your income stable by adopting multiple revenue streams across a broad range of price points.

These are some other revenue options to be considered:

• One-to-one consulting

• Paid memberships allow for new products and comprehensive services

• Sponsored content and affiliate marketing

To stay flexible in challenging times, diversification is a great way to stay flexible.

For example, high-end restaurants expanded into taking-out and other lower-cost options during the COVID-19 pandemic. This allowed them to reach a new market and customers then they would typically have.

5. Explore different pricing options

You should explore other pricing options when considering new customers.

For example, you might:

• You can sell simpler and less expensive services

• Offering both subscriptions and one-time purchases can help reduce customer upfront costs

• Reduce production costs and lower pricing to customers reluctant to commit in uncertain economic times

You can bring in more customers by offering different pricing options to make your products and services more accessible, even during recessions.

6. Consider financing options

Investigating current financing and credit options is another critical step in preparing for a downturn in business. It won't be surprising that lending standards will tighten with banks and other lenders discussing being prepared for a recession.

A line of credit is one of the best financial tools you have when trying to protect your business from a recession. A business line of credit will give you access to cash, and you won't have to pay any interest or fees unless you use it.

7. Make an emergency fund

Your small business may not be able to obtain a line credit. The next best thing is to make an emergency cash reserve.

You should aim to pay six months' worth of business expenses, such as:

• Inventory and payroll

• Utilities and rent

• Your commercial real estate mortgage

You can save money by contributing to a rainy day fund when you are financially well off. This will give you time to adjust and plan for a recession.

Bottom line

It's not unusual for business leaders to react to economic downturns, such as cost-slashing.

It doesn't matter what the current events are; it's a bright idea to prepare your company to deal with a possible recession or financial crisis. The best way to do this is to establish clear and up-to-date financial visibility.

Contact us today and find out how our team of outsourced accounting professionals can help you build cash flow forecasts and conduct scenario planning to effectively recession-proof your business