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Business owners don’t really want to think about recessions. We ignore them at our peril.

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9 Things a Small Business Owner Should Be Thinking about Aug 24, 2015

Will we be going into a recession? Probably. Not every stock market correction foretells a recession, but it is a very significant future indicator. In addition, we are due for a recession. While the economy is not overheated (by a long shot), there are strains in many areas and the Fed has used up all of its tricks.

Assuming you want to think about the potential impact on your business of a recession, whether short and shallow like Daddy Bush or Clinton or long and deep like Carter or Bush the son, what should you be doing, strategically, to prepare?

  1. Hoard Cash – Cash is King and Queen in a recession. The more you have, the more flexibility you have to advertise, promote, buy used equipment, negotiate deals, buy out competition, outlast competition, or buy other things cheap.
  2. Reduce staff as early as possible – Probably the #1 killer of small businesses in downturns is the inclination to hold on to folks you care about way too long. If you are not merciless in your decision making on this issue, you may pay one or more employees for a few extra months and end up with your entire company collecting unemployment.
  3. Increase Marketing – A huge mistake that many businesses make in a recession is to reduce their exposure to current and new markets. I refer to this a spiraling down. You lose sales, become fearful, hunker down, reduce marketing, lose sales . . . . A recession is the perfect time to steal share from your competitors. Get aggressive.
  4. Go back to basics – There is no better time to start a business than in a recession. As some close their doors, there is always an overcorrection of available goods or services. At some point there is more demand than supply, and a start up will have huge advantages of energy and thinking like a start up when it comes to securing that over demand. If you think like a start up, you can capture that share. What got you where you are today? Go do that!
  5. Launch new products or enter new markets – See #4 and #1. You have the cash to take advantage of lower supply and companies that aren’t thinking strategically, but defensively.
  6. Buy out your competition – Company valuations shrink during a recession. Keep your eye out for potential acquisitions that may have been impossible a few months ago. This type of opportunity is more likely about six months or so into the recession.
  7. Buy stuff – I touched on this above, but it bears more emphasis. You will be able to buy commodities, used office furniture, used equipment (large and small), and used business vehicles CHEAP! Maybe 10¢ on the dollar.
  8. Get after your receivables NOW! – If you maintain accounts receivable, make collecting those receivables one of your highest priorities. In the Carter recession, money dried up, and it was impossible to collect. Be willing to give discounts to collect old money.
  9. Get rid of slow moving inventory – Sell now. It will be worth less or worthless during a recession. This will help you to raise cash

This is a short list, but a great starting point. Maybe we will dodge this bullet, but why engage in wishful thinking. The strategies above will help your company to prosper even if this bear market was only a false alarm.

In order to effectively manage your cash, and strategically contemplate your direction in various market conditions, it is critical that you have financial reporting that is accurate, recent, and presented in a way that is useful to your needs. ATPP can help you set up your financial reporting in a way that can accomplish those three goals. Call now for a quote – 818-436-2775