During a recession, you’ll want to make sure your business is secure and organised enough weather the crisis. We’ve prepared a guide for actions you can take during and in preparation for periods of economic downtime to protect your business from a dreaded slump. With diligence, forethought, and professional advice, you can steer your business to ensure you survive, or even prosper, during times of uncertainty.
Protect the revenue of your business
Recession planning will involve some tough decisions and fat-trimming. Take stock of your business and identify your strongest revenue channels. You can do this by using unit economics, break down what it is that you’re providing and the cost and returns from each product or service. What is generating the most revenue for the least cost? What is the most reliable earner? What are you struggling to earn money from? You can use this information to realign your business model around these products or services by optimising price structures and deprioritising products and services that are not generating strong profit margins.
Retain your existing clients
Repeat business is the lifeblood of your business and will be increasingly important during a recession. Your existing clientele will only return to you if they feel like they are getting value for money and a good service. When optimising your revenue streams make sure that you are not alienating your existing customer base, and that you can still provide a top-quality level of service to your most loyal clients. In addition to repeat business, happy customers can provide referrals. During a recession everyone is tightening their belts and being more selective about where they spend their money. So it is critical that you can retain a network of satisfied clients who can recommend you and bring new people through your door.
Effectively manage your business’ cash flow
A key step to take when a recession is imminent is to secure your cash reserves. Savings will be a reliable resource that can help keep you afloat during times of hardship. Where possible avoid reinvesting or paying out profits and keep them secure in case they are needed at a critical moment. Next, make a detailed plan of your company’s cash flow and forecast, three, six, and twelve months ahead. Detailed forecast charts accounting for the recession are an excellent aid to anticipate when you might be short of cash and will give you the forewarning you need to weather these times.
Manage debt and new financing intelligently
Assess the debts and creditors that your business owes and make careful decisions about which to pay off. If it is financially possible, use your cashflow to pay down some of the higher interest debts or credit cards. This reduces the potential for high interest costs to eat away at your revenue and recur each month. If it is viable for the business, then consider financing. However, you will need to very carefully assess the potential repayment amounts to ensure that your business will not be saddled by compounding payments over time.
Keep on top of collections
Getting invoices paid on time can be a challenge at the best of times but when your customers are also feeling the pinch, this problem can worsen. Take the time to assess your clients, who is likely to pay on time, and who isn’t. This will help you anticipate cashflow and allow you to tailor solutions to specific clients to help reduce the time it takes them to pay. You could consider renegotiating contracts or reducing late payments with Xero or similar software. Keeping collections consistent will help make your cashflow more regular and planning the future of your business during turbulent times a little easier.
It is never too late to prepare for a hard time that might be outside of your control. Having detailed forecasts and assessments of your business and its cashflow, responsibly managed debts and finances, and cash reserves are essential to keeping yourself ready for whatever the future might hold.
If you need help navigating the current economic climate or want to prepare your business for an uncertain future, engage the services of a professional accountant. Bells Accountants are a team of professional accountants who offer a complete accountancy service for your business including bookkeeping, VAT returns, and personalised advice. To find out more about how you can help your business survive a recession, call 020 8468 1087 or email .