If a recession is coming, how do I prepare my company?
First, who knows? The economists can’t even agree on the definition, let alone, the answer to the questions!
However, I do know that there is complete UNCERTAINTY and lack of the ability to predict the future makes all the markets nervous – the Federal Reserve, raise interest rates or not; the NYSE, stocks trending higher (a bubble) or taking a dive; the supply chain, improving or getting worse?
Given these factors, my philosophy is to BE PREPARED! Here are some ideas how:
1. Talk to your clients. What are they seeing in the industry? What issues are they facing? Is their business slowing down (which means they won’t be buying as much from you)? Keep your ear to the ground. Call your important clients more often.
2. Build a cash reserve. This is easier said than done, I realize… but you might delay some projects that you had set funds aside for, or slow down your payables by a few days. You should have at least 2 months of fixed costs and payroll set aside (3 months is even better).
3. Secure a line of credit. This will give you the cash reserves you need in lieu of #2 – but at a cost.
4. De-lever. Despite the above for cash reserves, try paying down your debt as much as possible. This will reduce your carrying costs over the long haul (if necessary).
5. Make decisions quickly. Many companies will “wait and see.” They will pay their staff for 3 or 4 months, exhaust reserves, and then not make it. If you have marginal employees, RIF them now! Complete a sensitivity analysis and see how long you will last with a 20% drop in revenue? What about 30%? What’s breakeven? Plan strategies ahead of time, so you can take action when necessary.
The tricky part of this discussion is that most of my clients are still incredibly busy. They keep hearing about the “recession” but they’re still working 80 hour weeks trying to fulfill our clients’ needs. This dichotomy tends to exaggerate the concerns: “What am I missing?”
If you’re still busy, great! Keep up the good work, follow the steps above, and pay attention to the warning signs by staying close to your clients.
If you’re starting to see the slow down (and some industries are), absolutely start looking at cutting costs and going into preservation mode — as you want to be here (with your best employees) when the economy turns around.
Please let me know your thoughts! Do you agree with my analysis? Are these the steps you followed? What did you do instead? How did it work out?
Want to talk further about this subject?
Contact me and book a time or consider joining a BOMBA Mastermind where you will get the tools to complete the sensitivity analysis on the margin compression and you can talk confidentially to a peer group who could give you constructive feedback on your pricing.