Five Expert Tips for Recession-Proofing Your Business

Furloughs, stock market crashes, and small business lending — sound familiar? Following the 18-month Great Recession between 2007 and 2009, founders are finding themselves in financial hot water once again in 2020. Economic downturns are seemingly inevitable as a business owner, but there are steps you can take now to safeguard your company from financial peril.

Consider these five tips for recession-proofing your business in the face of a volatile economy.

1. Create a Cash Flow Planner

A whopping 82 percent of businesses fail due to poor cash flow management. When recession-proofing your company, begin by creating a cash flow planner to track your business finances. To do so, designate a spreadsheet to log your projected revenue and expenses for the next 12 weeks, and update the document each week. This will allow your business to better understand when you can expect payments from clients as well as when suppliers or contractors must be paid.

A cash flow planner provides a clear look at your existing finances, which allows you to better plan for periods of restricted cash flow as well as any upcoming financial needs. By getting a handle on your numbers now, you can create a clear profit plan for your future, including where you may need to push or pull back if the economy begins a downturn.

Jeffrey Bartel, chairman and managing director of Hamptons Group real estate investment, private capital, and advisory firm, advocates strongly for cash flow planning — especially during periods of financial uncertainty. As a former senior C-suite executive at multiple Fortune 200 companies, Jeff Bartel recommends tracking your business finances for optimal security during economic hardships. According to Jeff, a bird’s eye view of your cash flow allows your business to act proactively and seamlessly pivot according to emerging conditions.

2. Administer Routine Stress Tests

As proven by recent events, you simply cannot predict your financial future. From mere minutes to multiple months, time can rapidly inflate or depress the economy, leaving your business scrambling to keep up. This is why it’s paramount to conduct various stress tests to determine how your business would handle unexpected disaster scenarios.

Run through multiple crisis events, including how your business would fare through a sharp decline in sales. What would happen if your input expenses increased due to a weaker economy? How is your business impacted by travel restrictions and parcel delays? Understand how unexpected developments could impact your business and implement contingency plans in advance. While you can’t necessarily plan for the unexpected, you can prepare and adapt to the worst-case scenario.

3. Forge Strong Client Relationships

This goes without saying, but your business holds a much greater chance of survival with the support of a loyal customer base or strong client relationships. It’s essential to consistently grow your customer base, email list, and log of potential leads to ensure that if you encounter a hiccup, it won’t be business-ending. Moreover, aim to diversify the types of client relationships you build. Ideally, your rapport with consumers should defy borders and area codes, so you can circumvent the pressures of a localized economic downturn.

Consider the approach Jeffrey Bartel took with Hamptons Group. Over the past ten years, Jeff and his team have grown the business to attain assets, holding, affiliates, partners, and clients from around the globe. Their clients and commercial partners encompass both publicly and privately-held companies in various industries and sectors as well as international conglomerates based in the U.S., Europe, and Latin America. While major events such as the Great Recession and the recent pandemic can impact the global economy, international expansion opens a plethora of opportunities to diversify your business.

4. Build Multiple Revenue Streams

Focus on your core competencies and build multiple revenue streams for them. When one aspect of your business is not performing due to circumstances out of your control, you should be able to rely on a diversified set of services to continue bringing in revenue. However, boasting a variety of methods to bring in revenue at a wide range of price points should be a priority in your business strategy, regardless of whether you’re preparing for a recession or not.

You never want to get caught with all of your eggs in one basket. Multiple revenue streams allow your business to remain nimble and pivot when need be. Alternative streams, such as a paid membership group, sponsored content, and digital and physical products, can safeguard your bottom line if the economy waivers.

5. Secure Financing (Before It’s Too Late)

Aside from traditional SBA funding programs powered by the U.S. Small Business Association, the recent CARES Act established four additional temporary programs to address financial challenges created by the COVID-19 outbreak: SBA Debt Relief, SBA Express Bridge Loans, EIDL, and the extended Paycheck Protection Program (PPP). However, as with all federal loan programs, there are limitations on who can apply as well as a wait-time for your acceptance and distribution of funds. If you’re strapped for cash flow, this waiting game can be enough to tank your business.

Instead, if you’re fortunate enough to not desperately need financing now, be wise, and secure it before you need it. This is not to say you should apply for loans you don’t need, but rather, now is the time to evaluate your options and plan for the future. Focus on any pending issues with your personal or business credit. Plus, be sure to gather all pertinent documents, including financial statements and tax returns, in case you’ll need to file for loans in the immediate future.

Prepare for the Unexpected

While no one can predict what tomorrow will hold, it’s not exactly a secret that the economy can be volatile. Before leaving your team at risk for what’s to come, protect your livelihood today by recession-proofing your business. By mapping your cash flow, planning for crises, and diversifying your revenue and client relationships, you can safeguard your business from an economic downturn.