While recessions are seldom welcomed, well-positioned companies can find important opportunities in economic downturns. You can recession-proof your business – if you work to put your business on solid financial footing now and find that your projections leave you in a position to make investments, it’s possible to emerge from lean times stronger than before.
For example, develop a plan to win business from competitors: Is it possible to provide additional value, service, or pricing that would attract new business? Where can you reinvest in your business to add capabilities or efficiencies?
In some sectors, signs of softening are emerging. The yield curve has signaled a possible economic slowdown. And, whether recession is on the horizon or not, being prepared is always a good idea. To help your business withstand a possible recession and possibly emerge even stronger, focus on four key areas to recession-proof your business.
1. Build a Financial Safety Net to Recession-Proof your Business
While business is still good and cash flow strong, focus on building a financial safety net. This may include saving a larger cash reserve and applying for an additional line of credit before you need it. These actions can help you weather times when business is slower or cash flow is erratic. This may also be a good time to renegotiate contracts with suppliers, seeking better terms, including better pricing, additional time to pay, or discounts for early payment.
2. Stress-Test Your Business
Meet with your accounting and bookkeeping team to look for additional savings. If your company offers credit to suppliers, ensure that invoices are sent promptly and that accounts receivable are as current as possible. Work with your team and/or your financial advisors to review various financial projections—both with the impact of a downturn and “business as usual”—and stress-test your company under the worst-case scenario.
3. Prep the Team
As you review your financial position, also review your current employee headcount and personnel needs going forward. The tight labor market has made it difficult to find skilled employees. Is your company adequately staffed? If not, a downturn could be an opportunity to find talented additions—possibly at a bargain. Consider whether hiring in a recession makes sense and, if so, which positions you will prioritize—usually those that can add value, efficiency, or revenue. It might also be a good time to consider whether hiring independent contractors can help you fill some of the talent gaps you may have.
4. Identify Opportunities to Recession-Proof your Business
In some cases, you may be in an ideal situation to expand or even purchase distressed competitors. Real estate may be more affordable for a new location. Something we discuss with our clients are the pros and cons of owning the building where your business is located. Merging with a competitor may allow you to gain more market share while enjoying some economies of scale.
When you approach the possibility of recession with a planning mindset, you may find that your business is not only ready to weather the downturn but also poised to capitalize on the opportunities such times bring. Meeting with your wealth management advisor can help you allocate investments appropriately and help you assess your company’s financial well-being.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.