Is Your Business Recession Ready?

Posted by Ryan Howard on Sep 6, 2019, 3:54:14 PM

Is Your Business Recession Ready

Is the United States headed for a 2019 recession? According to economists, the risk is high though there was strong financial growth in the first half of the year. Even the whisper of a recession can trigger business owners with even the strongest constitution. 

Do you know if your business is recession-proofed or prepared? Do you feel secure that you can continue operating in an economic downturn? Here are some steps you can take now to feel better about the future of your business.

Is your business recession ready?

What Defines a Recession?

According to Investopedia, a recession is defined as a significant decline in general economic activity in a designated region.  The decline is typically measured after two consecutive quarters of decline in GDP plus other monthly indicators like higher unemployment. The government, investors and businesses usually track and feel a recession even before it's officially declared.

How's Your Cash Flow?

The best way to ensure your business is prepared for a recession is analysis and measurement of various signals. For instance, working capital and cash flow measure a business' liquidity and overall performance. These measurements indicate if your business can access necessary cash when you need it to keep your business running over time. Do you have a good idea of your cash flow and emergency cash? Are you able to secure credit or loans if necessary?

See also: How to Increase Working Capital in 30 Days

What's Your Accounts Receivable Turnover Ratio?

Do you have an idea of how quickly you're getting paid on your invoices or contracts? Your business' accounts receivable turnover ratio measures how effective you are at collecting debts owed to you and if you need to make any changes to your credit policies.  If your customers are consistently paying late, your business may be hurting in a economic crunch. Keeping your customer payments in line with a strict A/R collection policy can greatly benefit your cash flow and keep your business out of the red.

A/R Collections Policy: Sample Template

Can You Forecast Future Sales or Reduce Debt?

Before you make an investment in growth, make sure you have a good forecasting model of future sales. If you've been in a growth period, now may be the time to sit back and reevaluate any debt that you've incurred. Is it possible to pay off or reduce what you owe? Can you renegotiate monthly expenses so that you'll have extra cash for any emergency needs? Seriously reconsider any new spending or expenses if you are uncertain about future revenue for your business. 

How Efficient Is Your Business?

Take stock of any inefficient processes in your business. While it would be heartbreaking to let go of some employees during a recession, you may not have to if your business is running like  a well-oiled machine with a tight knit crew. Creating and implementing efficient, flexible business processes can make your business agile, stronger and more profitable. 

Now is also the time to make sure your crew is happy and on board with the mission of your business.  Stay transparent with your employees and let them chime in on how to make your business better and how to keep your customers satisfied. Both are important to keeping the ship righted during the storm - if there is one.

Topics: Best Practices, Accounts Receivable, Entrepreneurs