As a result of the Covid-19 pandemic’s devastation to the economy in 2020 and 2021, many people who operate their own businesses have been forced to contend with a wide range of difficulties. Now, there are indications that a recession could be on the horizon, according to some experts fast from ConsolidatonNow. Those companies that are still operating may need to revise their strategies in order to get ready for the longer-term repercussions that a prolonged economic slump will have on their finances.
Even though a recession might be challenging to get through, it does not necessarily have to be catastrophic for business owners. In the following article, 15 members of the Forbes Finance Council discuss some actionable initiatives that business owners and executives can take right now to strengthen their companies and make them through challenging economic times.
1. Ensure that you have a wellness checkup.
A thorough investigation into one’s financial situation is one way for leaders to evaluate their overall health. The establishment of cash reserves and the planning of expenditures as well as future payments enables leaders to pinpoint areas in which spending can be reduced. This may necessitate a readjustment of the priorities of the organization or a change in its strategy in order to free up cash flow and develop cash reserves, both of which can assist executives in navigating future economic problems. – Jenn Flynn, Senior Vice President and Head of the Small Business Bank at Capital One
2. Make a plan for the next five years.
In situations like these, forecasting is of the utmost significance. It is in your best interest to plan as far ahead as possible in addition to looking as far ahead as possible. In fact, I would recommend formulating a strategy for the next five years. You should be able to calculate your fundamental operational costs as well as the real cash that will come in on a monthly, quarterly, and annual basis. You should also be able to determine how large of a contraction you can endure depending on the net cash that you have available. – Damaris Herron-Watkins, President and CEO of A Better Chance Inc.
The Forbes Finance Council is an invitation-only association that is comprised of executives working with prosperous accounting, wealth management, and financial planning organizations.
3. Avoid Long-Term Agreements
Stay away from lengthy contracts, especially if they promise to secure more advantageous pricing. Price certainty will not serve you as well as flexibility and the capacity to react rapidly, especially if you need to pivot to alternative offerings or cut output. Flexibility and the ability to shift swiftly will serve you better. In a market that is always shifting, having pricing locked in may come with additional buying requirements. These restrictions may be unnecessary and may lead to additional spending. – Aaron Spool, CEO and Managing Partner, Eventus Advisory Group, LLC
4. Make the Most of the Affordable Credit Available Now
It is anticipated that global supply chain disruptions and energy crises would develop into food crises in 2022, which may lead to inflation rates that are higher than planned. In order to make the most of inexpensive credit, business owners should work toward increasing the amount of debt they carry to an acceptable level (but should avoid being over-levered). Investing in upfront capital expenditures is the best way to guarantee that a future revaluation of your hard assets will accurately reflect the higher rate of inflation. – Alexey Posternak, Chief AI Scientist at MTS
5. Make sure your vaults are always stocked.
Regardless of whether or not the economy is in a recession, business owners have an obligation to maintain healthy cash reserves. This may take the shape of cash and investments, or it may be in the form of access to credit. Consider conducting an analysis of any potential reinvestment techniques into the company, becoming familiar with your return on revenue, and formulating a plan for what to do in the event that your company is cut in half. Having a plan for the best-case scenario is simple; having a plan for the worst-case scenario is where the real money is made. Green Ridge Wealth Planning, led by Robert Mascia
6. Calculate a break-even point for your business’s bottom line.
Owners of businesses should prepare themselves for some economic turbulence in the near future, which may include an eventual increase in interest rates as well as the possibility of higher taxes to offset a significant deficit. It would be wise to have a clear bottom-line break-even number in order to ensure the continued viability of your company even during challenging times. It is highly advisable to give some thought to the possibility of consolidating any existing business loans with interest rates that are fixed. – Matt Dixon, Managing Director of TruNorth Advisors
7. Get ready to take advantage of employment opportunities that arise throughout the recession.
It is essential to keep one’s focus on the long term. There is a shortage of workers, and businesses are having a difficult time identifying potential leaders. Get ready today to immediately adjust your strategy and ramp it up in the event that a recessionary stage of the economic cycle occurs as it inevitably will. In times of economic hardship, it is possible to find outstanding candidates for open positions, particularly if the downturn follows closely on the heels of a period of severe labor shortage. – Jamie Ellis, Katz, Sapper & Miller
8. Establish a War Chest in Order to Capture Market Share
Put together a strategy and a supply of weapons right away. Make the most of a potential future economic downturn by seizing the chance to raise your market share, expand your skills, and broaden your talent pool in order to accelerate your business while competitors are forced to cut down. – Edward Dellheim, Point B
9. Gain Control Over Your Payroll Costs
It is necessary for a company to plan for a sales slowdown and a downturn in addition to planning for labor cost rises and compression due to the effects of inflation and minimum wage hikes. This will ensure that the company is in a good position to balance costs to slower revenue. Payroll is usually a company’s largest expense (other than the cost of goods, that is), hence it is important that it be managed effectively in order to alleviate any problems that may arise with regard to profits. – Steve Babick, President and Chief Executive Officer of HSI, Inc.
10. Provide Your Employees with Various Training Opportunities
Cross-training employees is an actionable step that can be taken by any business owner to help make their company more resistant to the effects of a recession. Although it would appear to be a straightforward case of “one plus one,” cross-training actually results in a return that is exponential in nature. Employees get the ability to better comprehend one another and more effectively transition from functioning as individual players to cooperating as a team as a result. – Eric Couch, ProVision Brokerage, a Limited Liability Company
11. Profit From Inaccuracies In The Market’s Pricing
During economic downturns, business owners have the chance to take advantage of mispriced market possibilities by identifying and acting upon business ventures that will bear fruit during the subsequent upturn. An investor or business owner who enters a recession with a solid financial position and sufficient liquidity will be in a better position to capitalize on opportunities and grow their company, even while others are fleeing the market out of fear. Bridge Investment Group’s John Ward
12. Start Banking Money And Eliminating Debt
Because a recession results in fewer sales and less cash available to support firm operations, businesses need robust plans for financial management that include saving enough money to meet their requirements and survive an economic slump. This involves the management of debt, because the more debt a company has, the more susceptible it is to financial hardship during a downturn. Phonexa Holdings, LLC’s Lilit Davtyan
13. Conduct an analysis of the company’s existing debts with the goal of refinancing them.
Right now, business owners should be analyzing their companies’ debt loads and looking into refinancing options as quickly as they can, because it is almost certain that interest rates will continue to rise in the near future. Refinancing a business’s debt using a loan from the Small Business Administration (SBA) will result in more favorable terms and longer repayment periods, dramatically improving the company’s monthly cash flow and enhancing its ability to weather a recession. Christopher Hurn, President and CEO, Fountainhead Commercial Capital
14. Anticipate Possible Outcomes and Establish Reserves to Cover Payroll.
It is critical to take proactive measures. It is essential to make preparations for potential scenarios that have the potential to impact every facet of your company. Build sufficient cash reserves to cover three to six months’ worth of payroll, and apply a lean approach to all other expenses. This is important from a financial point of view. In the event that your cash reserves are depleted, you should schedule a meeting with your bank and discuss the various other liquidity options that are available to you. Boys & Girls Clubs of the Central Orange Coast’s Ashley Harris
15. Ensure You Have Ample Liquidity
Liquidity is the most important factor to consider when trying to prepare for a potential market downturn, regardless of whether or not the situation meets the definition of a recession according to technical standards. How many things are there in “ample”? The standard recommendation is anywhere from 12 to 18 months’ worth. At the beginning of the pandemic, we saw that companies that had plenty of liquid assets were in a much better position to navigate the economic uncertainty than those that did not. – Omar Choucair, Trintech International
