Mar 29, 2019

Prepare for a Recession – Even If It Never Materializes

It’s sound business logic: the best time to look for a (blank) is when you don’t need it. While that strategy applies in countless professional and personal scenarios, it has special relevance for small business owners during today’s economic uncertainty.

With growing vehemence, pundits are arguing either that a recession is just around the corner or that the current economic strength is poised to continue uninterrupted for the foreseeable future. No matter which prediction feels more accurate to you, now is a great time to prepare your business for the possibility of a downturn.

There are several reasons to prepare. Small businesses are particularly vulnerable if things head south. And if they don’t, but you prepare anyway, you still reap the rewards. Either way, you win.

So what steps can you take now to mitigate bad times that may or may not come to pass?

Get your operating capital in place

If the last recession is any indication, bank capital will dry up suddenly if there’s a downturn. Make sure your credit lines are robust enough to sustain you. If your existing credit line is too low or overpriced, this is a great time to refinance it at better terms.

Move forward with smaller spends but put the big ones on hold

Now is a good time to develop and roll out line extensions on the existing products and services that are working well for your business. Ditto for upgrading or repairing equipment. If you were planning a massive investment that puts your whole enterprise at risk, now may not be the best time.

Reevaluate your suppliers

If a recession hits, suppliers will feel it too. And the last thing you need is an interruption to the steady supply of products and services you depend on for your operations. Check-in with key vendors to assess their ability to withstand an economic rough patch. Ideally, you should be able to place them in 1 of 2 broad imaginary buckets: financially stable and unstable.

The first group is the one you may need to count on. Reinforce your relationship with them. If appropriate, assure them of your continued desire to do business — even a peek at your strategy for recession-proofing your business — because they’ll have the same concerns about you.

For the second group, those likely to suffer under a recession, pursue a similar strategy while also scouting alternatives in case you need to deploy a Plan B.

Check-in with your most reliable customers and clients

Assess and nurture client relationships as you would with suppliers, but with some variation. You need a steady flow of sales even more than a steady flow of goods and services from your vendors. Let them know you’re in it for long term gains and will weather any uncertainty with minimal disruption. You might also explore whether you’re paying their invoices faster than necessary. For many businesses, for example, net 45 is the new net 30. Paying regularly but a little more slowly could give you an important cushion. For customers with questionable stability, explore the opposite approach.

Shore up your workforce

If you have employees, now’s a good time to circle the wagons. Cement the mutually rewarding relationships you have with your workforce — whether it’s a part-time assistant or a whole crew of workers. Do some bonding and reinforce how valued they are to your success. Reassure them that their continued presence is a priority for you. You don’t want people deserting you out of fear they may be pink-slipped soon. At the same time, though, curtail any discretionary hiring activities. When the volatility passes, you can invest in more headcount. 

It takes a little cash to change the world.

So what are you waiting for?

About the author

Expansion Capital Group
Expansion Capital Group

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