You’ve probably heard rumblings and noticed headlines warning of a possible recession. While no one person or analyst can predict our economic future definitively, business owners across the U.S. are wondering if there are steps they should be taking now in case there is a recession on the horizon.
Below are some tips to recession-proof your business. These are actions you can take now, down the road, or even when business is at an all-time high.
Ask Your Accountant for a Financial Report
The first step in making any financial changes to your business is getting an understanding of the full scope of what’s happening. This means understanding…
- How your income is being generated
- Revenue and expenses for each of your products and services
- Payroll costs
- Whether there is a seasonal flow to your income
Having a base knowledge of how money is flowing through your business is critical no matter what’s happening with the economy. But, if you are worried about a recession, this report will make the next steps so much easier.
Schedule a Meeting with Your Accountant
Looping your accountant in early means you can take a look at your business together and come up with a plan before any potential downturn happens. In this meeting, you’ll want to be frank about your concerns and work with your accountant to determine what will be the best way to recession-proof your business, and identify next steps. Because every business has a different combination of structures, products, staff, and business plans, it’s important to get qualified advice from someone who knows the ins and outs of your business.
If you’re not already working with an accountant, consider setting up a consultation and investing in an analysis and forecast.
Have Your Accountant Put Together a Forecast
A forecast analyzes your financial flow and works to protect the future. Forecasting in the face of a potential recession also means coming up with the potential effects of that and how you as a business owner can work around that.
When putting together a forecast, your accountant will analyze historical data and your business’ financial path to estimate for future costs. Forecasting can help your company determine where to allocate resources, staff, and money, and how that will impact revenue.
A financial forecast can be short-term or long-term, and updated periodically. This can help inform your budget.
Update Your Budget
With your forecast built, it’s time to update your budget. While your budget estimates costs, expenses, revenues, it also outlines expected cashflow, debt reduction, and growth.
During budgeting, you can also determine what your minimum income required to cover operating costs, and set some flag points (meaning, when your income drops to a certain level, this indicates a change needs to be made or a new plan must be implemented).
Your accountant can be a great resource for advice on this point. A good budget with longterm stability and business longevity in mind can help you through rough patches and low points, and lower your stress level.
Consider Diversifying, or Reallocating Your Efforts
Part of recession-proofing is diversifying your income streams. This can include services, products, investments, and shifting how you allocate staff, money, and time.
Diversifying can involve offering new services and products, looking into options that are less volatile and require little overhead, and identifying passive income streams.
Reallocating can be anything from shifting costs and expenses to dedicating more of your team to a primary product or service.
If it makes sense for your business, diversifying your revenue streams can ensure you have more ways to generate income when and if things get tough.
Plan for the Future Regularly. Not Just in the Face of a Potential Recession
The best way to protect yourself from economic dips and valleys it to plan for the future regularly, not just in the face of a potential recession.
Business owners who maintain and update a business plan, forecast, and budget typically have a broader understanding of how they are generating revenue, know their business’ weak points (and work to improve them), and create safety nets to ensure they can continue to operate through difficult times. Planning ahead and building strategies that can be implemented when times get tough can be a huge stress reducer for business owners.
Whether you update your forecast and budget yearly, every six months, or quarterly, it’s important to operate with a wide lens view of your business, and understand that peaks and valleys are normal.
Do The Best That You Can
It might sound simple and silly, but in the face of a recession business owners only have so much influence over customer and client habits. No amount of hard work and planning can guarantee that you won’t be affected by a recession, but it can keep your business afloat longer and offer stability in an uncertain time.