The thought of a recession hitting is scary, especially for a business owner. Knowing where to spend, cut, and what to do to make your business more recession-proof can feel overwhelming. That’s why we are here to share five ways to prepare your business for a recession.
Protecting your cash flow by monitoring your expenses is the first step to preparing your business. You need to be aware of the money going out before you can even look at making cuts. Investing in marketing and diversifying will help you get new clients and keep cash flowing in. Prioritizing new technology can help streamline your processes while outsourcing jobs like accounting will help you save on employee expenses without cutting on the quality of work.
In this blog, we explore these concepts in more detail so you can feel better about what to do to protect your business if we see another recession hit.
It’s never too early to start preparing your business for a recession. Start by booking a free consultation with us and learn how outsourcing your accounting can save you money and time.
What Businesses Need To Do To Prepare For A Recession
Recessions hit countries and industries at different times. So while it may be hard to navigate precisely when a recession may hit and impact your business, you can start preparing today.
To help you get started on the right foot, we outlined five ways you can help prepare your business now, so you’ll be better equipped to face a looming recession.
#1 Monitor Your Cash Flow
Keeping a finger on your cash reserve is necessary to make sure you can pay your debts and expenses– even if a recession were to hit. This is why we recommend applying for financing or lines of credit now before you desperately need it. That way, if you need a bridge loan– you’ll readily have access to the extra cash flow required.
A rule of thumb is that getting a loan (or money generally) is much easier when you don’t need it than when you do. So, having cash flow options before you need to rely on them is never a bad idea. And if you don’t use it, you’re no worse off.
So, make sure you’re keeping track of the money going out. And trim down where you can without harming your business long-term. It’s always a good idea to have 6-12 months’ worth of operating expenses saved. This will help sustain your business longer even if you do go through periods with less incoming capital.
#2 Invest In Marketing Your Business
Although a recession is a good time to stop spending money– you should keep spending where you still have a positive Return On Investment (ROI). If your marketing efforts produce a positive ROI, keep doing what you’re doing!
Depending on your industry, your clients may lose their ability to spend on businesses like yours. This means you may need to ramp up your marketing and target a new stream of clients to replace a potential loss of business from your other target markets.
Making money requires that people know and connect with your company. How will new customers know about your services or business if you stop marketing it?
#3 Invest In Technology
If you haven’t already, now would be a great time to automate as many tasks as you can to streamline your processes. Technology, applications, and automation have come far in the past ten years.
Many processes that used to take hours, days, or weeks can now be done practically automatically. Investing in technology can cost a lot of time and money up-front, but you’ll be glad you did when you don’t have the money or time later on.
#4 Protect Your Cash Flow By Outsourcing Expenses
Protecting your cash flow and reducing discretionary expenses is a great way to protect your business from a recession. Cutting your expenses will allow you to keep cash flow for non-negotiable costs while creating a larger cash reserve to remain solvent. Plus, it will help you to come out on the other side of the recession– still intact.
It’s important when cutting costs that you don’t lose out on the quality of your products and services– as that may cause you to lose revenue in the long term.
A great way to keep a high quality of work while cutting costs is by outsourcing some of your work. No one wants to let go of someone they have been working with for years, but the sad truth is that you may have to make some tough calls in an economic downturn.
Outsourcing your accounting, for example, is a way to cut expenses without compromising on the quality of services. It’s a way to only pay for the work you need done and save on employee expenses such as full-time salaries, benefits, work functions, and more!
Related: 5 Benefits of Outsourcing Your Accounting and Bookkeeping Services
#5 Diversify, Diversify, Diversify
I’m sure you’ve heard the saying, don’t put all your eggs in one basket. This saying holds true, especially in an economic downturn.
If all of your clients work in the restaurant industry and are all struggling, it will significantly impact your business and income. Try to diversify your client base. And, if you can’t, diversify your revenue.
Do your research and find a few core target audiences that align with what service you’re offering/ what you’re trying to sell. Ask yourself, are these people still able to buy? If yes, make sure your value is clearly stated. Tell them what problem you will solve.
Make sure your value proposition makes sense and is clear to them. People are more cautious with their money when a recession hits.
The same goes for diversifying your revenue. It’s great to add another money-making stream to your business, but don’t try to add five new products simultaneously or move to a field you don’t know.
Suppose you were an outsourcing accounting company. In that case, you may add or sell accounting software, run some courses or workshops about accounting tips for small businesses, work with another company as an affiliate, and so on.
Let’s Start By Saving You Money On Your Accounting Fees!
Recessions are a scary and intimidating topic that we’ve all been trying to avoid. The sad reality is that it probably will come whether or not we want it. As tempting as it is to ignore, the best thing you can do for your business is to prepare today– before your business demands it.
A good place to start is by looking at your business’s expenses and finding areas to cut.
One that is easier than you think is outsourcing tasks like accounting. Not only can this save your business roughly $39,000/year, but you get the same (if not higher) quality of work.
Give us a call today to learn if outsourcing your accounting and bookkeeping needs could be the right first step for you.