It’s no secret that we’re already in, or quickly heading towards, a recession. While there is much debate over how severe the impact will be, one thing is clear: we must build recession-proof businesses if we hope to weather the storm.
As business owners, it’s common to let certain considerations fall into the background when things get busy. But now, it’s time to ensure you have enough money in the bank when the proverbial (and literal, in the UK) rainy days arrive.
The following tactics are not a complete guide to building a recession-proof business, but they will allow you to make a good start. Let’s begin.
1. Evaluate monthly costs
The most important aspect of recession-proofing your business is having the knowledge and data that empowers you to make those important decisions before the recession is fully in motion. Whether those decisions are changes in staff, services, or seeking finance.
Even if you already have a handle on your expenses, evaluating operational costs on a regular basis allows you to:
cut down unnecessary costs which can be used to build up a cash reserve
observe how ‘healthy’ your books look, to spot issues before they escalate
anticipate required changes, in advance, giving you and your team time to adapt in a controlled and strategic manner
2. Optimise your cashflow
For recession proofing, it is of utmost importance to optimise and safeguard cashflow as early as possible. There will always be cash flowing out. But ensuring what is meant to flow in, goes in, is crucial.
Many of us are in this storm together. So, take time to remind and re-establish just how important your customers are to you, and make your services and products indispensable.
You want to be one of the first invoices on the pile and the first bill paid wherever possible. Incentives for customers to pay early is also an option to reduce the Days Sales Outstanding.
If you have a specific group of customers who carry your business every month, it’s also crucial to evaluate their paying habits. Insurance against customers who default may be a worthy avenue to explore. Diversifying revenue streams also creates a buffer to being dependent on one set of clients, but the extent to which this is possible depends on your business.
3. Harness finance options before you need them
When we are talking about personal finance, we are told to take as few loans as possible for fear of debt. But when it comes to business, this could not be more false.
Cashflow resilience and the flexibility to adapt to a changing economic climate are greatly improved by business finance options. The key is to harness them before your books become uncreditworthy.
Finance is not a last resort but a smart and strategic choice for recession-proofing your business. Type of finance include, but are not limited to:
Invoice finance: releases cash stuck in unpaid invoices to stabilise cashflow
Trade finance: pays your suppliers so you can fulfil orders both large and small, protecting your creditworthiness as you can pay early or on time
Asset finance: releases from, or provides cash for, current assets such as vehicles and machinery
Currency exchange: allows your business to expand overseas without suffering from turbulent currency exchange rates
4. Build trusted partnerships
The time to determine the weak points in your supply chain and support network is ideally not mid-recession, it’s now. Discuss and re-negotiate terms of your partnership where possible.
Whilst many businesses are in the same boat in tough times like these, not everyone acts with the same integrity and values. Finding suppliers and customers who align with your ethos provides a head start when it comes to recession-proofing your business. Focus on forming partnerships where you value each other’s services and maintain open communication, as standard.
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Need some help recession-proofing your business? Contact us today for a free, no-obligation consultation to identify your business finance options.