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Five Ways to Prepare Your Business for a Recession

There is a lot of talk – and a lot of worry – about an impending recession these days. A lot of signs point to a slowing market, such as the most recent rounds of layoffs, interest rate hikes, and a sluggish stock market. But, your business does not have to be at the mercy of a recessionary market. Here are a few ways to help set your business up to survive economic downturn.

Pay off Debt: There are a lot of thoughts on what is the best method to use when paying off debt. Some opt to pay off the highest interest rate first, and others focus on paying off the debt with the highest monthly payment. However you do it, make it priority to pay off debt and free up some cash from the monthly payments. Bonus Tip: Try to avoid paying with debt as much as possible, such as credit cards or loans. Although it is tempting to pay with debt, especially to conserve cash, the increased interest rates make debt more expensive, which can hurt future cash flows. But, if you do end up paying with credit or taking out a loan, factor the increased interest cost into your budget and projections.

Build a Savings: It seems to be a universal truth, that businesses with the most money in the bank are those who are best able to weather economic storms. It’s not exactly a system that gives a small business a fair shake, but it is something to keep in mind when heading into rough economic headwinds. Give your business a fighting chance and stash any extra profits away.

Slash Expenses: This builds upon the previous point of creating a savings account, and in order to put money away, it might mean downsizing and really analyzing expenses, to make sure everything your business does is value-added. Does it make sense to take on a new lease right now, or add a product offering that will cost a lot up-front, and (hopefully) pay off in the long run? Perhaps it makes sense to partner with other small businesses to share expenses, such as going in together to buy large inventory or supply quantities, to keep the cost-per-unit down. It might mean getting very creative with your cost savings, but it can pay off in the long run.

Focus Revenues: Along with slashing expenses, it is important to take stock of how you earn your money. Are all business offerings making profit? Would it make sense to narrow your strategy, to target offerings that make you the most money, and offer more of those? Does it make financial sense to distribute items across the US, or would it be more profitable to focus on a smaller economic area? These are all important considerations in setting your business up to be competitive, and revenue-generating, during a downturn.

Budget and Forecast: This goes without saying, but budgeting and forecasting is indispensable, even in the best of times. Developing a budget, and sticking to it, can help a business stay on track to meet its revenue, expense, and saving goals, and it can also help see where the areas of opportunity are. Forecasting revenues and expenses is also invaluable, and it might make sense to do a few different projections, using different assumptions, to see how your business will weather different economic situations. It might not be pretty, but it might give you time to prepare.

We hope that these thoughts will help your business strategize on how to prepare for a potential recession that we hope never comes. If nothing else, it is always good to analyze what your business does and how it does it, to make sure all activities are value-added and in-line with future goals.

Have you tried any of these ideas already? If so, let us know in the comments below.

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