business planning for a recession

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Build a Business Plan for Recession: 10 Tips

“What goes up must come down”. Physicist Sir Isaac Newton was describing gravity when he made that statement more than three centuries ago. But it also applies to the economy, wherein a period of economic growth is at some point followed by a period of decline. Several months of negative economic growth is known as a recession, during which time a business’s survival may be at stake as unemployment rises, customers curtail their spending and earnings drop.

But when armed with a recession plan — designed when times are good and business leaders are thinking clearly — proactive companies can see their way through a downturn and even prevail.

What Is Recession Planning?

No one can predict exactly if or when a recession will occur or how long it will last. For example, the sudden onset of the COVID-19 pandemic in early 2020 sparked the most recent U.S. recession, though the downturn lasted just two months — the shortest one on record. Growing businesses can be hit disproportionately harder than their larger brethren, too, as was the case during the Great Recession between 2007 and 2009, according to an analysis by the Federal Reserve Bank of New York’s Research and Statistics Group.

But no matter how a recession plays out, preparing well in advance is key. Just like a cybersecurity incident–response plan maps out the steps a business should take in the event of an attack — as well as best practices, like awareness training, to limit exposure in the first place — a recession plan can help fortify the business to withstand tight times and even find opportunities during a recession . A preemptive strategy that clearly lays out the steps a business can take in advance of and during a recession can help the company keep the ill effects at bay and be ready for when the economy rebounds.

Key Takeaways

• Recessions are an inevitable part of the economic cycle; it’s better to plan for them when times are good than to be caught unprepared when a recession arrives.
• Two ways businesses can prepare for a recession are to build their emergency funds and reduce outstanding debt.
• A detailed recession plan lays out in advance ways the business can respond to multiple what-if scenarios.

Recession Planning Explained

If one thing is certain (aside from death and taxes), the economy will rise and the economy will fall. It’s important not to lose sight of an inevitable contraction. Understanding a recession’s warning signs — stock-market volatility, rising unemployment and declining sales, among them — and how they may impact your business are the building blocks of a sound recession plan.

Preparation should include brainstorming possible scenarios and how to handle them. For example, when should you cut back on operating expenses and by how much? What should you do if your biggest client goes bust? What if the recession lasts longer than you planned and you’re tight on cash? Should you apply for a business loan? What kind and from whom? A well-thought-out plan will also include trigger points, or metrics, that signal when it’s time to take action and what exactly should be done. For example, a slowdown in cash flow for three months could signal it’s time to reduce the workforce by a predetermined percentage.

Why Build a Recession Plan Before a Recession Happens?

It has been well documented over the years how stress negatively affects decision-making. Coming up with a recession plan when one is already underway and the pressure is on can lead to missteps and poor choices that could potentially hurt a business’s ability to withstand the economic storm. This speaks to why a recession plan is best made proactively, when the economy is growing and business is strong. Some businesses models seem naturally recession-proof , but with time on their side, business leaders can think clearly and strategically as they write out their plans and define roles and responsibilities. In addition, activities like building an emergency fund and keeping debt low need to happen prior to a recession, during profitable times.

10 Tips for a Recession-Proof Business

Preparing for a recession beforehand can make living through one a little less bumpy. Starting the process when times are good can help companies enter a recession in as strong a position as possible . Done well, a recession plan prepares a business to survive — or even thrive — during a recession, ready to grow again when the economy recovers. Here are some tips to consider.

Mind the budget. That means not only staying within your budget, but frequently reevaluating expenses to prevent overspending, reallocate funds and ensure a healthy amount is being saved. It may be time to pull back spending and adjust the budget accordingly. If you’ve weathered a few recessions before, review how you previously kept your budget in check and consider employing similar strategies.

Pay down outstanding debt. Revenue often decreases during a recession, which can make it tougher for businesses to pay off their own debt. If able, consider increasing payment amounts to lower your monthly bills before a recession ever hits. Doing so can leave you with more cash on hand each month, increasing your financial flexibility during lean times and maybe helping you sleep a little easier at night.

If you have multiple debts, consider their maturity dates and interest rates when deciding which one to repay first. It’s typically best to repay debt with the highest interest rate first. Refinancing is another option. Interest rates often fall in anticipation of or during a recession, so if the business has debt due within a year or two, refinancing it for a lower interest rate may be practical.

But holding on to old debt may make more sense if inflation is high. One effect of inflation is that makes the money you already owe “cheaper” than the real value of current dollars you’d use to repay it. In addition, interest rates rise during inflation. So the interest rates on your old debt may be lower than the interest rate on any new debt you incur. A thorough recession plan should account for different inflation/interest scenarios.

Beef up your emergency fund. Just as financial experts advise individuals to keep three to six months’ worth of living expenses in the bank in case of a hardship, such as a job loss, so, too, should businesses build an emergency fund. In a perfect world, a business emergency fund would cover expenses for at least six months. The time to save is when the economy is strong and cash is flowing in. Should business slow down — say, sales drop or cash-pinched customers need more time to pay their bills — the emergency fund can go toward paying employees and covering fixed expenses and other needs while cost-cutting and revenue-boosting measures are put in place.

Another idea: Consider applying for a bank line of credit, provided interest rates are favorable, that you can draw from, if necessary.

Cut back where you can. Numbers don’t lie. Recession planning should include myriad alternatives to lower expenses. For example, identify areas of your business in advance where you can save money without hurting operations. Discretionary spending is a good place to start. Business travel or perks like free lunches can go on the cutting board. Paid advertising can take a backseat to more organic options. Research alternative suppliers and their prices to have at the ready should you decide it’s time to switch vendors. But check with your current suppliers first: They may be more open to negotiating their prices, even if just by a little bit, in order to keep your business. Similarly, consider asking the landlord to lower your rent payment, or reduce the amount of space your operation needs to occupy.

Replacing long-term contracts for supplies and services with pay-as-you-go contracts is another cost-cutting measure. Also, consider ways to save by using technology and automation to boost productivity, whether for product manufacturing or back-end internal processes like accounting. Technology can free employees from handling routine matters so they can focus on increasing sales.

As a recession endures, there could come a time to trim employees’ hours or salaries. Layoffs could ultimately become necessary. Be sure to treat employees with respect, and you may be able to rehire them when the economy improves.

Determine where you can expand. This may seem counterintuitive during a period of cost-cutting, but if you have the funds, a recession can be an advantageous time to expand through the acquisition of plants and equipment, product lines and even entire businesses that are priced for quick liquidation. But there are other creative ways to expand. What new types of services or add-on items would appeal to your existing client base? For example, a cybersecurity software maker could develop a training course to teach cybersecurity awareness.

Diversification is another strategy. For example, if your law firm focuses on the insurance industry and the recession causes insurance companies to pull back, your business will undoubtedly be hurt, too. If it’s possible or practical to expand the business’s scope, consider targeting potential customers in a noncyclical industry that continues to do well during a downtime, such as health care.

Build your lead pool. Generating sales and marketing leads is at the heart of any growing business as it works to expand its customer base, yet it takes on newfound importance when a recession is approaching and customers rein in their spending. Ways to build your lead pool include proactively contacting existing clients about future business opportunities, asking existing clients for referrals, conducting social media and email marketing campaigns, attending networking events and even cold-calling.

Another way to build your lead pool is by creating high-value digital content of topical interest to current and prospective customers. Content types include articles, blogs, downloadable business guides and videos, to name a few. They can have a greater impact when they follow search engine optimization (SEO) techniques designed to help the content rank high on a person’s search results page. When times get tough, like during a recession, businesses want to know as much as they can. If your content can lead them to the right information, you’ve likely developed a lead of your own.

Plan for the long term. It can be difficult to see the forest for the trees during a recession, when managing the business day to day takes precedence over long-term planning. This speaks to the importance of devising a plan before a recession occurs and fear sets in. It also frees up time: to innovate, so businesses can lay the groundwork for new products and services to introduce once the economy improves; to revamp go-to-market strategies for better days ahead; and to research new markets. And even if finances are tight and purchasing ability is limited, stay apprised of emerging technology and equipment that could benefit the business down the line.

Assess your business’s risk tolerance. How comfortable are you about pursuing potentially profitable investment opportunities and strategic partnerships amid a volatile market? Can you tolerate the exacerbated risks and losses? The answer lies just as much in a business’s financial health, prospects for continued sales and the size of its emergency fund as it does in how conservative or aggressive its owners are. But bear in mind, not investing may also be risky.

“The competitive risk of not investing is the failure to retain a satisfactory competitive position for lack of investment. … A balance must be struck between the error of pursuing too many unprofitable investment opportunities as opposed to the error of passing up too many potentially profitable ones”, advised renowned business strategist and author Pankaj Ghemawat more than 30 years ago — advice that still stands.

Help employees build their skill sets. Another area to invest in — and make the most of during any business slowdown — is upskilling your workforce, be it software training, certifications, virtual courses or mentorship opportunities. Employees benefit from learning new skills and so does the business, in terms of associated performance and productivity gains, the latter of which is considered one of the main ways to combat a recession. In the event of layoffs, having fewer employees capable of more roles and responsibilities can also be advantageous to the business.

Plan for multiple scenarios. Many factors will be at play during a recession that may impact your business. Account for as many what-if scenarios as you can beforehand, along with myriad ways to respond, to minimize surprises. Each scenario can have multiple levels, too. Begin with contemplating, “What if?” Assess the toll different scenarios would take on your business and define the metrics, or trigger points, that would justify putting a recession plan in action. Each scenario can have multiple levels, too. For example, if sales fall 10%, perhaps you nix business travel and cut advertising spending by half. A 20% drop might lead to converting a defined portion of your workforce from full time to part time. You get the idea.

Recession-Proof Your Business With NetSuite Financial Management Software

The ability to evaluate and monitor your business’s finances is key to planning for a recession and standing strong during one. NetSuite Financial Management is cloud-based software that provides visibility into a business’s financial processes. It can quickly produce budgets and forecasts, model what-if scenarios and generate detailed reports on business performance based on real-time data. This insight can lead to more confident decision-making at a time when the economic landscape is uncertain.

Recessions are an inevitable part of the economic cycle. But businesses that plan in advance — when times are good and chaos doesn’t cloud their thinking — and put in place preemptive measures, like building an emergency fund, lowering debt and detailing how to handle multiple recession scenarios, will find themselves in fighting shape when a recession takes hold. For some businesses, a recession may even be a time of growth and investment, leading to better days when the good times return.

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Recession Planning FAQs

Why is it important to have cash in a recession.

During a recession, revenue and cash flow often slow, making it more difficult for businesses to remain profitable and cover their expenses. Companies that have, over time, built an emergency fund can use that cash to continue operating until the economy begins to improve.

Who benefits during a recession?

Each recession is different. The recessions in the 1970s were caused by high oil prices. So companies that pumped oil out of the ground or provided services to those oil companies benefited. More recently, during the recession prompted by COVID-19, companies that benefited included the ones creating the vaccines, as well as product and service providers that catered to the remote workforce.

What products or services do well in a recession?

During a recession, nondiscretionary products and services, such as groceries, household items, health care, auto repairs and other essentials, continue to be in demand. They’re needed no matter what. People will typically curtail spending on the nonessentials, such as dining out and traveling.

How do you prepare for a recession in 2022?

Businesses can prepare for a recession by increasing their emergency funds, reducing debt and developing a recession plan that lays out the many possible financial scenarios and ways to handle each one. For example, what should you do if your biggest client goes bust? A well-thought-out plan — designed when times are good and business leaders are thinking clearly — will include trigger points that signal when it’s time to take action and what exactly should be done.

What is a recession plan?

A recession plan lays out a business’s strategies and tactics to prepare for and endure a recession.

What should you do during a recession?

Turn to the recession plan that you purposefully developed when the economy was thriving. Follow the steps you laid out in advance of the recession to withstand its ill effects as best as possible and be ready for when the economy rebounds. Importantly, try to remain calm and make level-headed decisions.

7 Business Opportunities in a Recession

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With second-quarter U.S. gross domestic product down from the prior quarter, there’s heightened debate around whether the U.S. economy is already in or heading toward a recession. We walk through the key aspects shaping that debate and offer strategies for business leaders to consider during periods of heightened volatility and slower economic growth—including a recession.   

Is a recession coming? 

First, we have to answer a different question: What counts as a recession?

A recession is informally defined as two successive quarters of negative GDP growth. The last two quarters fit that bill, with GDP contractions of 1.6% in Q1 and 0.9% in Q2, as calculated by the Commerce Department.

An official declaration of recession in the U.S. would come from the National Bureau of Economic Research (NBER), which incorporates a broader range of indicators, including employment markets. But it could take months before NBER issues an announcement.

JPMorgan Chase looks at a combination of economic factors and market signals to inform the thinking around the potential onset of a recession. At the end of July, the firm’s models pointed to slightly less than a 50% chance of recession within the next year. Meanwhile, volatility and significant corrections in the stock and bond markets were pricing in a much higher recession risk of between 75% and 80%. 

Some industries tend to be more or less recession-proof. Consumer staples, healthcare and food are examples of relatively inelastic products and services that consumers buy even when household budgets tighten.

What can your business do about it?

Terminology aside, two consecutive quarters of real GDP contraction illustrate the risk of slower economic growth and the need for boards and management teams to prepare for continued uncertainty.

We offer three key ways business leaders can prepare for a potential recession.

1. Watch data for warning signals—and stay nimble

Manage the risks within your control and retain a flexible cost structure and business model. Be proactive and devise an action plan for any potential slowing of sales and profits:

• Explore risk-reduction strategies, including forward buying of inputs or locking in interest rates.
• Identify discretionary expenses and overhead you can reduce or defer to maintain margins without sacrificing long-term growth plans.
• Think about near-term adjustments to your strategy, pricing or product mix that might help you weather the storm.
• Consider negotiating agreements with strategic suppliers or explore outsourcing functions to a vendor that may be more efficient.

Whether or not a recession materializes, business leaders should be prepared for multiple scenarios. Companies have been forced to be nimble the last few years, and we expect that mentality to be a requirement for operating sustainably in the near- to mid-term.

John Simmons

Head of Middle Market Banking & Specialized Industries JPMorgan Chase Commercial Banking

2. Maintain a fortress balance sheet

Maintaining a financial bill of health that can withstand shocks is paramount in a recessionary environment. 

• Focus on maintaining adequate liquidity to sustain your business through a downturn.
• Consider proactively refinancing debts that are coming due within the next one to two years.
• Balance deploying excess COVID-era liquidity with maintaining a buffer for downturns.
• Maintain a dialogue with lenders to provide updates on business performance and cash management. 

3. Be bold and take advantage of volatility

A downturn is more of a buyer’s market, creating unique opportunities for some companies.

• Consider M&A opportunities where you can take advantage of the equity market valuation premium for scale, growth and strong margins.
• Lower equity prices may provide an opportunity to acquire undervalued assets.
• Cash consideration can be used to deploy excess liquidity.
• Equity consideration can be used to take advantage of near-record equity multiple dispersion and minimize downside risk.

Note that at the end of July, S&P 500 valuation multiples had contracted significantly in 2022.

• The price-to-earnings ratio has contracted year to date and from the 2022 peak to trough.
• Technical changes in the past three decades—such as S&P 500 sector composition changes, strengthening profit margins, and robust balance sheets—may help support multiples at current valuations or higher.

There will always be pockets of opportunity and growth in any economic cycle. Many companies focus inward during a recession, but that may mean missing a unique chance to scale with a strategic merger or acquisition.

Rama Variankaval

Managing Director & Global Head of the J.P. Morgan Center for Carbon Transition and Corporate Finance Advisory

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JPMorgan Chase Bank, N.A. Member FDIC. Chase, J.P. Morgan, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. The views, opinions, estimates and strategies, as the case may be (“views”), expressed herein are those of Virginia Chambless and/or the other respective authors and speakers named in this piece and may differ from those of other JPMC employees and affiliates. These views are often based on current market conditions and are subject to change without notice. Any examples used are generic, hypothetical and for illustration purposes only. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness. Visit jpmorgan.com/cb-disclaimer for full disclosures and disclaimers related to this content.

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8 Proven Ways to Plan Your Business & Survive This Recession

Preparing for a recession can protect you from potential risks and failures. Let us examine the strategies for overcoming the recession.

Recession is one of the most feared terms of startups founders and businesses alike. The massive dip in business driven by many factors isn’t something you want if you’re running a startup. But with the right steps taken prudently, you can run your startup smooth even during a recession.

This guide will help you prepare your startup for recession by sharing a few actionable strategies that actually work.

Let’s get started.

Key Takeaways

• Doing research prior to the downturn can give you recession-proof ideas.
• Implying a new business approach can take you to the target customers.
• Diversifying the revenue can boost your business during times of crisis.

What is recession?

The term ‘recession’ is assumed as a serious economic downturn that results in rising unemployment and business failure, but the fact is that it is a period that deflects the economic escalation.

Can economists predict recession?

The longest economic downturn, Great Recession , happened in 1929 and lasted till 1939 turning several million Americans unemployed and 1000s bankrupt.

Recession is quite a natural phenomenon that is unavoidable, where it has occurred off and on.

The good news is that modern economists have learned to foresee recessions with great precision, as well as the risk of their existence in the economy.

Though the likelihood of a slowdown is predictable, its duration and consequences are uncertain. So, it is highly recommended that you have a recession plan for your business.

Is there a plan B?

Recessions occur unexpectedly. So plan and keep aside recession-proof business ideas to save you from hard times.

Having a secondary source of income can help you get through the recession.

During the recession, some products/goods or services may be worth thriving. Assess the risks, conduct extensive research , and select the best recession-proof idea.

What is Recession Planning?

In order to overcome the economic uncertainty that occurs during a recession, the majority of businesses commonly employ a variety of strategies to prevent failure.

Recession planning is the process of preparing for a downturn by establishing strategies for your company’s survival, such as keeping cash, hiring less employees, and more.

How recession affects startup businesses

A recession would have a greater impact on startups and other small businesses than on established businesses.

Other firms would not risk investing in startups at these periods of increased risk, and managing a business with less cash flow would be more complex.

Startup businesses often create single items/services and rely on a single revenue stream. Startups suffer when their single product fails to capture the market’s sales pitch.

Over this lack of size, the great majority of small firms have less financial flexibility, market strength, and influence within their market to weather the storms of a recession.

Take a sneak peek at the Ideas to make your startup business successful and develop a recession-proof business plan.

How to financially plan for a recession

To keep your firm afloat during the recession, you must arrange your finances beforehand. Here are some suggestions to help your business thrive even during a downturn.

• Evaluate your monthly expenses
• Focus on maintaining an emergency fund
• Have an alternate revenue plan
• Analyse your investment and cash flow
• Pay off your highest debt at the earliest

How to survive recession

When you are a startup in the midst of a serious economic crisis, you are at a crossroads in terms of saving your company and money.

If you are a business planning for a recession, then a strategic plan is required to mitigate the effects of recession on your business. Here are eight proven strategies to make your business recession-proof.

1. Diversify revenue

Diverse revenue will stem from a diverse business plan.

It would be beneficial to have a recession-proof product or service on hand during difficult economic times. This would give you a steady income.

If you have a number of services, your cash flow will be stable even if some do not make income.

2. Reduce your expenses

Reduce expenses that you believe are unnecessary for the organisation. Avoid activities that do not contribute significantly to the company’s growth.

Keep an eye on your purchasing and selling ranges and the profit scale. Cut the expenses that are chewing up much of your capital.

Instead of recruiting additional staff, consider outsourcing your services.

Take a quick look at the different sources of funding to grow your startup if you are looking for cool ways to raise capital for your business firm.

3. Save some money

Keep some money in your account to avoid becoming cash strapped. In an emergency, this would come in handy.

Make a cash reserve to keep your business intact. This would allow you to meet your company’s purchasing needs while also consistently paying your employees.

4. Keep debts low

Maintaining debts is not a risky activity when the economy is doing well, but it can be difficult during a crisis.

Keeping track of your bills can save you a lot of headaches in the long run. Inadequate cash flow management can have a negative impact on your company’s growth.

Taking additional capital through new loans may be a bad option during these times. This could put you in a lot of debt.

Suggested read: How to Optimise Your Team for Business Growth

5. Implement a different business approach

Continue to try out fresh business approaches. Talk to your employees and focus on exploring innovative business strategies.

If you believe you know how to make your business stand out, check trying several marketing techniques.

If you own a restaurant, consider selling your treats through door delivery. If you are a courier service, offer to pick up and deliver to your customers at their convenience.

6. Balance the employee base

Your employees are the backbone and soul of your company. Deal with the recession wisely and choose not to lose them.

Your employees will rely on the income you provide, so set aside funds to pay them even in times of crisis.

Uphold your employees and battle the recession together. The good times are not far away.

7. Stay active in business

You would have had a solid consumer base prior to the downturn. Connect with your customers to keep your business alive.

Regardless of the recession, loyal customers will always choose you. Having exchanges with suppliers and customers will help your business grow significantly.

8. Focus on marketing

When businesses are struggling during a recession, it is natural that you would lose focus and stop marketing activities.

Stopping your marketing operations can put your business on hold and slow down your progress, taking you off your customer’s radar.

The key to pushing your business again is marketing. Keep branding strategy consistent to promote your business and reach out to your customers.

You can also take a look at how your business can acquire your first 20 customers here.

Preparing for the recession helps protect your tech startup company from potential threats and failures. Planning ahead of time is crucial for your company’s survival throughout the recession.

Simple recession planning in advance will prevent you from potential risks and mark your brand popularity even during downturns. If you have a perfect plan in place to establish during a recession, you can avoid the odds.

Want to boost your team’s productivity and efficiency during recession with customised tech solutions? Get in touch with our experts now.

Which industry is recession-proof?

Here are few top industries that are recession-proof:

• Healthcare industry
• Consumer essentials
• Technology and IT
• Accounting and tax service

What is a recession plan?

These are some steps you can consider before a recession:

• Keep your costs down
• Create an emergency fund
• Pay off your debts
• Make smart investments

What do businesses do best in a recession?

During recession it is natural that customers cut their expenditure. When sales begin to decline, firms frequently cut costs, drop prices, and postpone new investment in order to survive the crisis and preserve stability throughout the economic slump

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Recession Planning 101: How to Prepare Your Business Now

Over the course of just a few short weeks this past September, news about the overall health of the economy was extremely confusing. Just before Labor Day, for instance, the federal government's jobs report found that the U.S. economy created over 315,000 jobs in August – surpassing what most economists had expected. But there was little celebration of what most considered a positive jobs report. Indeed, a report about stubbornly high inflation a little over a week later sent the Dow Jones Industrial Average down by nearly 1300 points.

2022 has been a year of uncertainty and debate about the health and prospects for the macro economy. Among the most contentious arguments is around whether or not the economy has entered or is soon-to-enter a recession. While gross domestic product (GDP) did shrink two quarters in a row – typically a metric indicating a recession – plenty of experts argue we have not actually entered a recession and won’t anytime soon.

Planning for a Recession

In many ways, debates among economists about what constitutes a recession are of little use to small business owners. This is particularly true for the record number of new business owners who chose to launch companies in the wake of job losses, the Great Resignation and a rapidly evolving economy.

For these new business owners (and for any small business, really) prepping early for the inevitability of an economic downturn is an important part of building a company that can last. In fact, taking the time to plan for a recession – which, on average, last about 10 months – can also deliver more immediate business benefits, even when the economy is robust.

For example, consider the short and long-term benefits of these recession-proofing steps:

• Scrutinize and cut unnecessary expenses - It’s common for business owners to slash costs when demand slackens. Far better is to proactively evaluate business expenses to find those that aren’t delivering the value you need. Reducing costs in advance of a recession can both make your business more profitable in the short-term but also avoid a scenario where you are overreacting and cutting costs that will only harm your business in an economic downturn.
• Pay down debt - Starting and growing a business almost always requires taking on debt. The best time to pay down debt is when times are good and revenues are flowing in. When a recession hits, revenues fall and cash flow is tight. Not having to service large amounts of debt can give your company the cash flow flexibility it needs to weather a downturn.
• Have an emergency fund - The same advice financial advisors provide to families and individuals about having an emergency fund to cover at least six months of expenses also applies to small businesses. This will allow you to continue paying bills and salaries when sales drop and buy time for the economy to rebound.
• Explore new revenue sources - Diversifying what you sell becomes more important when a recession threatens your core business. This doesn’t mean straying far from what your company does well. Rather, think about adjacent products and services you can provide existing customers or use to attract new ones. For instance, a roofing company can transition to installing solar panels with the right training.
• Expand employee skills - Taking advantage of new revenue generating opportunities often requires expanding the skills of your employees. This is best done before a recession hits.

Succeeding During a Recession

Taking the time to proactively prepare your business for a recession is essential. But what makes planning valuable is when you actually execute on that well-crafted plan. This is harder than it seems. While planning for a recession can seem abstract before one begins, the economic challenges it brings are emotional and require difficult decisions.

One strategy for successfully navigating a recession is to evaluate your ideas for generating new revenue to see if any are particularly attractive during economic downturns. In other words, ask yourself whether the skills and products you currently offer (or could realistically offer) are always in demand.

There are a wide array of products and services that customers can’t do without, regardless of economic circumstances. For example, people can’t give up groceries or medical attention and taxes have to be filed no matter what. This means that the services of accountants and financial advisors, doctors and nurses and food retailers are evergreen. Demand for bargain products and helping homeowners complete DIY projects is also brisk during hard economic times.

Obviously, not all businesses will be able to pivot to provide new products and services. But having a flexible business model that can adapt to consumer demand is something all small business owners should strive for in order to make it through a recession.

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• Budgeting & Forecasting , Business Growth , Business Planning , COVID-19 Crisis

Business Planning for a Recession: 7 Steps to Recession Proof Business

• Chris Arndt
• September 14, 2022

While recessions are a normal part of the economic cycle, you can’t avoid what is all over the news cycle these days: Inflation, stagflation, recession. It may sound like doomsday has arrived, but business planning for a recession can put you a step ahead of the competition.

Warning Signs of a Recession

A recession may not be inevitable yet, but it’s still smart to look for warning signs of recession:

• record high inflation
• record high fuel prices
• material costs rising sharply
• consumers feeling the brunt of inflation
• decreasing sales
• real estate slowing

Historically, we know that companies that prepared for past recessions came through okay , and a percentage of them even flourished. What set them apart? They got ahead of the game to recession proof their business.

How to prepare your business for a recession : 7 Step Guide

1). build up your rainy-day fund.

While your revenue is still strong, use extra funds to build up your emergency fund. This isn’t the first time we’ve mentioned the importance of a rainy-day fund in uncertain economic climates. Though how you go about it might be very different with interest rates climbing.

Cloud CFO Tip: Ideally you want to amass a fund that covers at least three to six months of operating expenses. That way if you experience a big impact to your revenue you have some breathing room. You can make strategic decisions about expenses and avoid a knee-jerk reaction.

One problem with a line of credit to be mindful of: banks can come in at any time and remove your excess credit. This kind of thing happened all over the place in the Great Recession, “you’re not using that additional $200K? We’re changing your terms and removing it from your line of credit.”

2). Play offense and diversify

I like to think that if you know how to double-down to prepare business for recession, you’re more likely to emerge from it stronger than ever. After the Great Recession we saw the greatest market rally over the following 10 years. So how do you position your company to be one of those that thrive?

Brand according to need

Think need instead of want. Then brand yourself accordingly. In fact, you want your brand to be indicative of your value. So, if you’re in the B2B space for example, and clients are focusing on where to make cuts, you want them to think twice about your company because they know you provide such good value. As I’ve said in the past, paying attention on how to increase LTV is the single most important goal you should be aiming for using your customer analytics.

Cloud CFO Tip: Shift your intention. Start having conversations with potential and existing customers to fulfill a need they have instead of treating each touchpoint as a transaction. 

Diversify your revenue streams

Research ways to diversify your revenue streams. For companies selling consumer products, can you pivot to also offer services in order to protect any loss in inventory sales? Are there new subscription models you could introduce for your products? Consider altering your pricing model to become more accessible. Recurring revenue models bring offer predictability for stable growth. Profile your best customers to understand how to increase LTV and reduce churn.

Recurring revenue models show their strength when CFOs balance long-term strategy while iterating for market turbulence.  Todd McElhatton, Zuora

Example 1: One client began renting a larger piece of capital equipment and companies were able to acquire it using operating expenses on a monthly recurring budget rather than taking a large chunk out of CapEx to purchase it. The result? The client’s sales increased.

Example 2: HubSpot adopted a growth strategy to make it more accessible to more companies. Instead of a strictly tiered system from Starter at just $40/month to Professional with the large jump to $800/month, they now offer Hubs and Bundled suites with scalable structures, add-ons and commitment levels. While there are still big jumps in price from Starter to Pro, a client can access more features in a Starter bundle at a lower price if they commit to a year. Smart. Even if those companies are paying less per month, HubSpot can rely on that recurring revenue. What happened? Their subscription revenue increased YoY by 36%.

Play offense with companies that align with yours

Additionally, if you are in a good financial position, more vulnerable companies might be open to be acquired. To make this happen you will need that rainy-day fund mentioned earlier.

Example: Junction, a digital marketing company that excels in the tourism sector recently acquired a tourism marketing elearning platform. This means a more comprehensive marketing certification program  plus  access to a growing list of clients. Additionally, it offers the post-acquisition gold mine of a prime hiring pool. Talk about a partnership that just makes sense.

Think of employee retention as a competitive market

Finally, one unique factor about the current economic climate is many companies are facing a labor shortage. In this competitive hiring market, get creative with hiring and work on your  employee retention strategy . Branch out from the standard ways of hiring and retaining staff:

• Offer hiring and recruiting bonuses. 
• Think of Instagram as the new Indeed and take your hiring social. 
• Don’t ignore SEO on your Careers pages.
• Use professional development to inherently increase your company value and lower your risk of losing A+ staff.

3). Check-in with your budget

You do have a budget right? If not, our fractional CFO services can help. If there ever was a time to start, now is that time.

To prepare for recession, build budgets that trigger spending changes if your sales decrease by x amount. For example, having tiered forecasts to represent revenue dips of 10, 20 and 30% and what cuts you will need to apply. And if you’re already consistently seeing large budget variances , now is the time to tighten up.

Example: For example, you might have a trigger so that if sales go down by 10%, you know how much you need to cut salaries by in order to maintain your operating margin. Plan ahead so you can quantify when and how much to cut expenses.

Think of these triggers as reverse drivers. Hopefully you won’t need to use them, but if you do, you can feel assured that you have a plan in place for a potential sharp downturn in revenue.

4). Cut expenses strategically

Generally we do not recommend making cuts that aren’t easily reinstated when revenue improves. Layoffs are not easy to reverse. There are many creative ways to cut business expenses including:

• swapping fixed for variable expenses;
• automating tasks to refocus staff on business development;
• and reviewing monthly recurring expenses.

Specifically, the swap for fixed to variable is a good strategy even in normal times, but is especially useful in an unpredictable economy with a looming recession. Having more variable expenses allows you to be nimble. It allows you to quickly cut costs if sales go down more than you predicted.

Cloud CFO Tip: For example, you might wish hire staff to cover 50-75% of your expected workload- or whatever you can consistently maintain. Then utilize contractors to make up the remaining percentage if you get more work, i.e., revenue. Trust me, you’ll sleep better at night.

Contractors are available to hire if needed and you don’t have to worry about letting people go if the work isn’t there. This is one of the benefits of a fractional CFO . You may be giving up some gross profit margin on the incremental work during the higher revenue months when you flex up. But, when you have a bad month, you’re not stuck paying fixed salaries for staff simply because you don’t want to let them go. Read more about how outsourced accounting for small business can help companies facing the Great Resignation.

Another alternative is to pay overtime to your current team instead of hiring subcontractors when you flex up. It’s a win-win, they make more money and you still pay less than you would contracting out. In general, overtime is a useful solution across industries not just those that use contractors.

Plus, companies that avoid layoffs and focus on operational improvements will see the increase in brand value we mentioned above.

5). Optimize inventory management

Plan to reduce inventory costs to increase cash flow. Identify slower-selling, less profitable items and run discounts or promos to move the stale inventory off the shelf. Then hone in on the minimum inventory you need to accommodate your predicted demand. When you’re buying inventory for business as usual, you buy inventory with the expectation you’re going to sell a set amount next month. Let’s say you normally need $1 million of inventory on-hand. But if a recession hits and your sales suddenly get cut in half, you’ve now overspent, and have $500,000 cash tied up in inventory. And cash is really what you need in a recession.

Cloud CFO Tip: If you want a metric to determine if you’re buying too much inventory, you should refer to your planned inventory turnover ratio or sell-through rate.

Reassess how your inventory impacts your cash flow. If sales are down, your COGS will be down because you’re selling fewer items, so you should notice your inventory turn ratio go down as well. This is not what you want going into a recession. Instead, be cautious with your sales forecasts which ultimately drive inventory procurement. To further capture your most profitable items you might turn to GMROI. The GMROI formula is:

GMROI should always be more than one, but there are industry benchmarks you can target to know if your product is competitive. This metric will tell you where to focus your marketing efforts and where you might want to target stale inventory with discounts to move it out of your warehouse in order to free up some cash.

6). Review the interest rates on your debt

You’ve likely heard economists discussing a possible stagflation: when sales and demand are decreasing but interest rates are increasing. In this case, companies with a lot of debt are the most vulnerable. In a recession, if you have variable interest rates on your debt, that could hit you hard right when your sales are decreasing. This is a scenario you want to plan for to prepare your business for recession.

That said, you might have a good deal on some of your older debt. Your recession plan should take into consideration the maturity dates and interest rates compared to current inflation. Holding on to old debt can make sense depending on the current rate.

7). Get financial reporting in order

Your CFO should ensure everything is up to date so that you have your finger on the pulse when it comes to something like a sizable shift in cash flow. Then have your CFO run various modeling for different scenarios and identify which triggers will call for executing your plan for recession. A good CFO should be able to assess your risk tolerance in a volatile market. Just one of the benefits of a fractional CFO . For most companies, the bottom line in a recession remains protecting your cash flow and profit margin.

Recession planning for businesses must include multiple scenarios  

Finally, don’t forget to plan for multiple versions of your projected sales. To recession proof your business begin by estimating how much you think your sales might decrease. Next, run an anemic and awesome version of those scenarios. “If sales decrease by x amount, we have a contingency plan to get through it.”

Some questions to consider when business planning for a recession:

• When should you cut back on operating expenses?
• What if the recession lasts longer than forecasted?
• When should you dip into your line of credit to protect it?
• What key drivers are triggers for a shift in spending?
• What KPIs should I track to optimize inventory?

Once you begin to consider the effects of a sharp or even shallow decrease in revenue you can begin to properly prepare business for recession.

Use these 7 steps to prepare your business for recession and you might not only survive but thrive in an otherwise unruly market. Need help with financial modeling? Get in touch to learn more about our outsourced accounting services.  

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Learn the necessary steps for creating a recession-proof business plan.

If you’re worried about a recession and what it might do to your small business, you’re not alone. But there are things you can do to help recession-proof your business. Here are six ways to get started.

[Read more:   Start. Run. Grow.Weathering Financial Uncertainty ]

Embrace adaptability

If there’s anything we’ve learned in the last two years, it’s the importance of adaptability. Change is inevitable, so the ability to pivot and be flexible is key to surviving any recession.

"You can't be married to any specific strategy, product, or service," said Abhi Lokesh, CEO and co-founder of Fracture . "You've got to be willing to try everything you can, see what works, and pivot accordingly."

Lokesh, who launched Fracture at the height of the Great Recession in 2009, acknowledges that change can be difficult. Still, entrepreneurs can't let pride, stubbornness, or tradition get in the way of survival.

"It's a matter of being incredibly detail-oriented and leaving no stone unturned in the pursuit of being as financially stable as possible," he told CO—.

Listen to your customers' current needs

Understanding and serving your customers' needs is important at any time. But it’s crucial to empathize with their struggles in the midst of a recession.

Eli Diament, founder and director of Azurite Consulting , recommends using primary research to understand these changes better. By conducting customer research via surveys or focus groups, you’ll understand how your customers’ needs and buying habits are shifting.

"If done effectively, primary research will allow you to tap into the decision-makers and users you want and need to hear from," Diament added. "A well-designed and precisely targeted survey can collect these insights far better than any panel, 'gut feel,' or word-of-mouth."

Cut unnecessary costs

Keeping a close eye on expenses and cash flow can help you plan for your financial future and avoid overspending. Of course, it can be hard to cut back on your costs and maintain a high level of quality in your products and services.

That’s why Lisa Vitale, business matchmaker at BarterPays! , recommends getting creative with your spending. "This is going to be a long, financially lean road. Seek out alternate revenue streams to continue building your client base, allowing you to preserve your financial stability, even when existing customer sales are down."

William Vanderveer, CEO of Redefine Healthcare , always recommends keeping six months' worth of expenses in savings in case your sales drop. However, this isn't always possible, especially for businesses that depleted their savings trying to stay afloat.

If you constantly find yourself short on cash flow, you may want to explore financing options. It’s always better to have access to a line of credit before you need it.

[Read more: A Practical Guide to Funding Your Small Business with Business Loans and Beyond ]

It's a matter of being incredibly detail-oriented and leaving no stone unturned in the pursuit of being as financially stable as possible.

Abhi Lokesh, co-founder and CEO, Fracture

Know your numbers

In addition to cutting expenses, you need to know where your business stands financially. You need to understand what’s happening with your cash flow, profit margins, inventory, and monthly sales. Use accounting software to monitor your business’s day-to-day operations closely and check your financial reports.

Keep in touch with your employees

Recessions aren’t just stressful for business owners — they’re also stressful for your employees. Your employees are feeling uncertain about what the future holds, and they may be worried about losing their jobs.

That’s why it’s important to communicate openly with your employees. Let them know what’s going on in your business and why you’re making certain decisions.

It’s also helpful to begin building an agile workforce before a recession hits. If possible, give employees the option to do their work remotely. You can also supplement your business with freelancers or independent contractors.

[Read more: Are Your Employees Really Engaged? Here's How You'll Know ]

Keep investing in your business

Surviving an economic downturn will be difficult for any business owner, but keep looking for opportunities, even when things feel bleak, said Vitale.

"Don't stop marketing and advertising," she said. "Businesses that continue to invest in themselves and advertise during recessions come back stronger and bounce back faster than those that don't."

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Annual Planning for a Recession in 2023: How to Prepare for Success

By Ted Skinner

Is a 2023 recession on the horizon?

• Unemployment Increases
• Unemployment usually rises during a recession. During the Great Recession, unemployment rose from 4% to 10%. If you're wondering why unemployment is growing, it's because companies aren't hiring. They're cutting jobs and reducing hours due to weak sales or decreasing margins.
• Economic Growth Slows Down
• Businesses that feel less confident about the economy slow down their investment plans. Companies cut back on capital expenditures, such as building factories and updating equipment. When companies cut back on investments, they reduce revenue, reducing profits. Profits fall, and that leads to layoffs.
• Businesses and Consumers Spend Less
• When people feel less confident about their finances, they spend fewer dollars. People buy fewer cars, homes, appliances, clothes, and entertainment products. If consumers don't feel confident in their financial situation, they're likely to spend less, creating a self-perpetuating cycle. Access to capital becomes much more challenging during a recession, so financial planning becomes even more critical and has an outsize impact on your business.

Strategic Annual Planning Business Planning For a 2023 Recession: 

The global economy has been growing steadily for over a decade. However, many economists predict it could slow down in 2023. No business is recession-proof, so even if your company is growing, the impact on the economy will impact your business during any short-term economic downturn. What do you need to know about preparing for a potential economic slowdown during annual recession  planning ? Are you and your team ready to make the tough decisions during strategic recession planning?

• Plan Ahead.  As soon as the Federal Reserve announced that it planned to considerably raise interest rates to cool the economy and tame  inflation , many investors began selling stocks and bonds. They worried that rising borrowing costs would make it harder for businesses to borrow money and consumers to buy homes and cars. Some economists say that if the Fed raises rates too high, the economy could weaken further, resulting in a recession.
• Be Prepared for a Recession.  In addition to saving money, having an emergency fund is essential. A good rule of thumb is to have a six-month cash flow runway for your business - remember , cash is king . You don't want to run out of money as market conditions tighten. Make sure you review all of your major line items in the budget and all necessary expenditures. Be prepared to cut those not contributing to your business and ensure that all your decisions are data-driven.
• Keep Cash Flowing.  With fewer customers paying bills, companies are likely to cut spending. This means less demand for goods and services. Companies typically reduce staffing levels during recessions, even though that might not be the best long-term strategic move as you don't want to lose your key players.
• Look for warning signs.    It would be best if you kept a sharp eye on all of your  leading KPIs . If you notice that sales are slowing, ask yourself why. Is there something wrong with your product or service? Are people buying less? Do you need to lower prices? Or maybe you need to offer better customer service. Keep an eye on the economic climate across industries. This will allow you to see what might be coming in the future for your business.
• Consider hiring more workers.  If you need extra help, consider adding highly talented employees. There will be qualified people on the market that haven't been there for the last several years; this could be the time to prepare your business for the future. How will your business look on the other side of the recession? What talent do you need on your team to get to the next step? This may be the time to be bold, but ensure you properly analyze the risk.
• Don't panic . Even if the economy slows, most experts agree that we won't see another Great Depression. Still, it would be best if you didn't let your guard down. Make sure you're well-prepared financially and mentally. While a recession brings pain, it also brings opportunity, so make sure you are looking for available options.

Business Planning for a 2023 Recession 

A recession can be an opportunity for businesses to grow. As consumers spend less money, there are fewer customers to buy from. This creates an opening for smaller businesses to take advantage of. However, knowing what you don't know about recessions is essential. You might think you won't be affected by a recession because you're small. But that couldn't be further from the truth. Small businesses are often the ones hit hardest during recessions.

The best way to protect yourself against a recession is to plan. If you wait until things start getting tough, it could be too late. And while you shouldn't panic, you want to ensure you're prepared for whatever happens next. At Rhythm Systems, we've helped thousands of executives create annual strategic plans in many business environments; see how we can help you with yearly professional  planning facilitators .

Ted Skinner

Looking for more information on how to prepare for a recession in 2023? Check out our additional strategic planning resources:

How to Conduct an Annual Planning Meeting

Annual Planning: 9 Tips to Focus & Align Your Team with a Great Plan

How CEOs Can Avoid High-Cost Mistakes in Annual Planning

Best Practices for Annual Planning

Learn More About Our Strategic Planning Facilitation Services

Rhythm Systems  Annual Planning Resource Center

Photo Credit: iStock by Getty Images

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Recession planning for businesses: 10 strategies for surviving an economic downturn

James deason & shaun langdon.

It seems like just about everything in our daily lives is getting more expensive by the day, from vegetables to petrol. This is largely a result of the COVID-19 pandemic that we’ve been managing for the last 2 years, as well as the ongoing war in Ukraine.

Economic growth is slowing down and inflation continues to rise, meaning that it will be very difficult for a lot of countries to avoid a recession. Not since the GFC in 2007 have we seen a global economic event of this size and scale.

The reserve bank of Australia’s goal was to keep inflation at around 2 - 3%, but new data is suggesting that inflation will peak at 7.2% by the end of the year. Seven percent or more is very high for Australia, and if wages don’t increase to match inflation, this could lead to a recession. It’s a daunting thought, but it’s critical that you take steps to future-proof your business by planning ahead now. 

How could a recession impact your business?

A recession is a significant decline in economic activity that lasts for at least six months. It is typically characterised by a decrease in gross domestic product, higher unemployment, and lower consumer spending. 

A recession can be caused by a variety of factors, including a drop in consumer confidence, an increase in interest rates, or a decrease in exports. A well-managed economy will typically recover from a recession within two to three years. However, if the underlying causes are not addressed, a recession can turn into a prolonged period of economic stagnation or even lead to a depression. 

So how could a recession impact your business?

1. Reduced cash flow

In a recession, there’s typically less money being spent by consumers. This reduced spending leads to less revenue for businesses, which in turn leads to less cash flow. Less cash coming in could make it difficult to meet their financial obligations.

2. Decreased demand

If consumer confidence and spending decline, there could be reduced demand for goods and services. As a result, businesses may cut back on production, which could mean layoffs and even further declines in consumer spending. The cycle can continue for some time, exacerbating the recession’s effects.

3. Operational changes

During a recession, businesses have to make operational changes and strategic pivots in order to stay afloat. While it might seem counterintuitive, many choose to invest in technology and automation at this time. This spend on software can help reduce the hours spent on repetitive tasks that can be easily done through the power of automation.

10 recession planning strategies to use in an economic downturn

Planning can be a tough process at the best of times, let alone when you’re trying to survive an economic downturn. But planning for the worst-case scenario is one of the best things you can do. 

So what strategies can you adopt now?

1. Build a cash reserve 

A cash reserve can help you weather a temporary dip in sales, unexpected expenses, or a recession. It also gives you and your team a peace of mind, knowing that the company has a financial safety net in place. 

While building up an emergency cash reserve takes time and discipline, it's well worth the effort. 

2. Protect your cash flow

By taking steps to improve cash flow management, you can reduce the risks of financial problems and ensure you have the resources you need to get through tough economic times. 

One way to forecast cash flow and business performance is by using Xero Analytics . Forecasting gives you a clear view of what your cash flow is going to look like so you’ve got more time and information to plan. Forecasting scenarios which could simulate a recession is a great way to plan for anything and help you adapt to even the harshest of economic conditions.

3. Establish your creditworthiness and pay down any debts

Recessionary periods are often accompanied by a decrease in credit availability. When lenders are reluctant to extend credit, businesses with strong creditworthiness are more likely to obtain the financing they need to pay down any debts and continue operations. A debt review will help you highlight the highest interest debt to help you prioritise which debts need to be ahead of others.

In the same vein, it’s important that you chase down any debtors that owe your company money in order to help with cash flow. Xero and WorkflowMax can help your business get paid faster and on time .

4. Review your budgets, operating costs and expenditures and cut back where you can

One place to start is by looking at expenditures. Are there any areas where money is being wasted? For example, are you spending too much on advertising or office supplies? Cutting back can help to save money without impacting the quality of your product or service.

Another area to examine is your operating costs. Can you renegotiate your lease or switch to a cheaper supplier? Can you use technology to help make your business more efficient? 

You might be forced to make tough decisions, but the goal is to make sure your business survives the recession so that you can thrive when the economy recovers.

5. Manage your inventory carefully

Inventory management is especially important when customers are cutting back on spending. 

By carefully managing your inventory, you can avoid the dreaded "stock-outs", where you run out of items and can’t meet customer demand. It also helps you avoid overstocking, which can tie up valuable resources and lead to markdowns and clearance sales. Careful inventory management is essential for maintaining profitability and keeping customers happy.

6. Review your marketing strategies (but don’t stop marketing!)

One area that’s often reviewed during tough economic times is marketing. Many businesses slash their marketing budgets in an effort to save money, but this can be a false economy. 

During a recession, consumers are more price-conscious than ever before and can be more loyal to brands they trust. So you want to continue to tell them about your special offers and why their business is so important to you. It’s also a good idea to spend some money on research to identify new opportunities and markets.

Reviewing your marketing strategy on a regular basis, even in good economic times, can help you to stay ahead of the competition and make the most of your marketing budget.

7. Make customers a priority

Loyal customers are the lifeblood of any business. They're the ones who keep coming back. Who spread the word about your business to their friends and family. And who help you stay in business. 

That’s why you have to make sure to treat your customers right. Give them the best possible service, offer fair prices, and show them that you appreciate their business. Do that, and you'll have customers for life.

8. Plan for the long term (and all potential scenarios)

While it's important to be agile and adapt to the ever-changing landscape, it's also essential that you plan for the long term. By taking a proactive approach and anticipating potential problems, you can minimise the impact of unforeseen events. 

By planning for the worst and putting measures in place to weather the storm, you can increase your chances of survival. In the short term, this may require some sacrifices, but in the long term, it will be worth it. 

Businesses that take a long-term view and plan for all eventualities are more likely to succeed over the life of the business.

9. Manage your staff and up-skill employees where possible

During tough economic times, it can be tempting to cut back on employee training and development. After all, there’s less money to go around. But investing in employee management and up-skilling can help you not only survive, but thrive. 

When employees feel supported and empowered, they’re more likely to be engaged and productive. Up-skilling your employees in all different types of roles within the business can help spread the load and help out departments that might be feeling the pinch more than others.

10. Develop innovative practices

By investing in technology and automating processes, you can become more efficient, and save time and money in the long run. 

Using a tool like WorkflowMax can help you keep track of your non-billable time and develop a strategy to close that gap. It also lets you see profitability across your jobs and manage your staff for maximum efficiency. 

With this laser-focus on costs, you’ve got the objective information you need to  help decide what can be trimmed and what costs are necessary to the business.

To learn more about how technology can help you recession-proof your business, book in for a demo.

James and Shaun are Senior Advisors at BlueRock , a multi-divisional professional services firm providing support to entrepreneurs and business owners. BlueRock takes a holistic approach to business and private wealth, with services across accounting, law, insurance and digital. James and Shaun are both experts at helping businesses manage their cash flow.

Shaun Langdon

Managing Director, BlueRock Bookkeeping and Health

Shaun is an experienced Chief Executive, Consultant, Coach, Facilitator, and current Managing Director of BlueRock Bookkeeping and Health. Shaun prides himself on getting the best outcomes for all of his clients.

James Deason

Associate Director, BlueRock Accounting

James is an Associate Director of BlueRock Accounting. James has many years of experience in the industry, with an impressive list of clients. He is well known as the ‘go-to-guy’ when it comes to helping clients with their cash flow issues.

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10 Business Strategies to Prepare for a Recession

By Eric Gelb, Senior Managing Director and Elisha M. Brestovansky, Senior Manager

In an economy plagued by a pandemic, increased government spending and supply chain issues, the threat of a recession is keeping business owners awake at night. The U.S. economy shrank by 0.9% in the second quarter of 2022 which followed a drop of 1.6% in the first quarter. Two consecutive quarters of negative growth is often indicative of a recession. Despite record job growth this year, the economy has weakened. Therefore, it is important for businesses to strategize and brace for impact. Here are 10 strategies to insulate against the impact of a recession: 

• Reviewing your business forecast and cash flow budget and make revisions as needed
• If business volume has slowed, eliminate extra shifts to reduce labor costs
• Prioritize expenses and obligations
• Eliminate nonessential expenses or defer payment
• Recalculate forecasted taxable income and adjust estimated tax payments as needed
• Unsecured and secured long-term debt
• Short-term debt (e.g., lines of credit, cash advances and credit cards if the interest rate is attractive)
• Loans from friends and family
• Personal loans and/or an equity infusion
• Government-backed loans (e.g., SBA loans)
• Crowdfunding
• Peer-to-peer (P2P) lending
• Convertible debt
• Revisit investment strategies. Meet with your advisors to determine if your investment strategies need to be adjusted with the current economic outlook in mind.
• Pursue M&A activities – if it makes sense. Merger and acquisition activities have been heavy in the recent environment and can be a great option to add new business capabilities, skills and gain market share in opportunity areas. In our recent article , it is noted that higher interest rates lead to higher discount rates and lower deal valuations – so if you’re in the market to make an acquisition, the current environment may create attractive opportunities.
• Onboarding processes for new employees and customers
• Marketing processes
• IT service support
• Contract generation
• Purchase orders
• Processing invoices
• Routine and repetitive tasks and functions
• Focus on talent. In times of uncertainty, employees may be an edge to make ends meet. Frequent layoffs and shifting additional responsibilities to employees without commensurate compensation can lead to plummeting employee morale and productivity. Be transparent with your employees as large layoffs may create a harmful environment. In addition, businesses may benefit from assessing employee strengths and weaknesses to realign staff according to business needs. In addition, new leaders may be identified and can be encouraged to take on more responsibility. For example, a CEO of a newsletter publishing company created a policy where employees were given spot and special bonuses for new business and money-saving ideas. For some of the larger ideas, the CEO paid a percentage of revenue or savings. One employee had suggested that they trim the size of a book by 0.25” or so all the way around. This met certain USPS rules so they saved an estimated 10% on shipping costs. They were able to keep the original shipping and handling cost constant – and the employee received a bonus for the idea.
• Continue marketing your business. In an economic slowdown, many businesses trim their marketing and advertising budgets to conserve cash. In fact, businesses should re-evaluate their marketing strategies to strengthen any opportunities or weaknesses and make the most of their marketing budget dollars. With online pay-per-click (PPC) and other direct response advertising methods, companies continue to shift marketing dollars online where they can target a particular audience. At the same time, if direct mail via the US Postal Service has declined in your Industry, this could be a time to test a direct mail package because your mailing may stand out today.
• Plan for the unexpected. Plan for as many potential scenarios as possible and ways to mitigate those scenarios if, for example, revenues fall short of plan and expenses exceed plan. For example, if sales fall XX%, we will need to cut travel or selling, general and administrative (SG&A) expenses by XX% to make up the difference. Run cash flow forecasts under several scenarios – meeting plan, missing play by 10%, 25%, 50%, etc. Look for ways to conserve and create cash.
• Planning for retirement contributions
• Compensation planning
• Accelerated depreciation (Section 179 or bonus depreciation)
• Special studies (e.g., Cost Segregation, Research & Development, Section 179D, etc.)
• Employee Retention Credits (ERC), if qualifications are met – see our article here
• Clean energy planning and credits
• Consult the experts. Meet with your trusted advisors to help make and maintain your strategies for success.