Are you recession ready?
The dreaded R word (Recession) has left people with the same feeling as that P word we don’t speak of (Pandemic).
As the Bank of Canada continues to fight inflation by increasing its key interest rate, many of the nation’s economists are predicting that a recession is on its way. Undoubtedly, an economic downtown affects all businesses, especially small and medium-sized companies, especially after fighting two years of lockdowns already! Tightened credit conditions and reduced cash flow are not easy circumstances to navigate in the best of times, but the timing of this recession certainly has a “kick em when they’re down” feeling for some.
So what can you do?
In times like these there are both soft and hard actions you can do, using our two favourite statements.
“Did we meet our sales goals” or “Did we make a profit this month?” AND MOST IMPORTANTLY “Do we really need this expense?”.
First let’s focus on the income statement and ask questions like
While you should be doing this monthly anyways, during this time of recession planning it is even more important that our energy be dedicated to operating activities such as accounts receivable follow-up. It’s never fun to follow up on an outstanding bill, but it may also be wise to add in interest charges on outstanding balances (make sure it’s in your contracts!).
With the threat of a recession looming, beefing up your cash collection – and your cash reserve – is going to crucial. Have you thought of adding any additional streams of revenues to really safeguard your cash flow?
But that’s not all you can do to help your business. If business does slow down there are some actions you can take to improve productivity and efficiency in your operations, thereby creating valuable resources for your business.
These are activities you can do that increase the overall goodwill of the company. Admittedly, these activities are not as exciting and typically don’t show a tangible value on your balance sheet (unless you sell the business). Still, they are actions that do increase the worth of your company. Regardless of whether the economy is up or down, focusing on these endeavors will allow your business to thrive in the long term. Here are some practical actions business owners can take:
- Building up a loyal recurring customer base – for example, nurturing an online community of current and potential customers, instead of just paying for advertising. Word of mouth is always key to a small business!
- Creating an environment of growth for employees – a strong management team and engaged workforce are hard to find. Invest in their potential by creating career paths and learning opportunities. Customers will also react to the positive energy coming from a happy workforce and stay more loyal when they get great service and value!
- Documenting trade secrets and technical processes – creating process documents that increase efficiency in operations will save your business time and money, especially during staff transitions and new system implementations.
Will this protect my business from a recession?
Frankly, all these activities will cost you time and require long-term thinking, but when the economy inevitably rebounds, your business will be well-positioned to hit the ground running and perform better than ever before.
Preparing your business to weather any storm involves diligent planning and sound financial advice. Contact us at DharnaCPA for a complimentary assessment to review ways to improve your business. We are currently offering a CFO Intensive package that will help you strategize your next steps, and evaluate the financial health of your company.
No business can avoid the impact of a global recession entirely, but having the right strategy and mindset is the foundation of every successful company, no matter the economic conditions.