Ready for the Dip: Recession-Proofing Your Small Business
Recent rumblings from economists suggest there is a possibility that we may be heading toward a new recession, and as a small business owner, preparing for this eventuality will give you the best chance of surviving it. With the right policies, spending strategies, and a few decisive business moves, it’s possible to ride out the downturn and make the best of an unfortunate situation. Use this advice from the Livingston Parish Chamber of Commerce to brace your business for a possible economic downturn.
Clearing Debt
Your first priority when it comes to preparation is to clear any debt before interest rates rise or you lose the funds to do so. Closing the gap isn’t always easy amidst economic turmoil, but it’s often possible to negotiate a rate reduction with credit card issuers or even opt for balance transfer cards with lower rates. High-interest debt is the most immediate pain point, and you should try to work your way down from your highest interest plans.
Invoicing and Collections
When a recession hits, the last thing you want is a stagnant cash flow or to have to chase up late payers. If you haven’t already, it’s important to put in place the practices now that will ensure payments on time later. Make sure that you have well-written, legally airtight contracts, 30-day payment terms, multiple forms of payment acceptance, prompt invoicing, and sufficient follow-ups with clients in a professional manner if they’re dragging their heels.
Cash Savings
It’s important that your business has cash reserves in place that can be drawn from in a time of emergency - these may prove crucial as they allow you more time and flexibility. Make sure you’re allocating a percentage of your revenues into a savings account and cap this as an amount that can cover business expenses for the expected duration of the forecasted recession. Remember, by placing money into savings, you are not investing it into the business, and therefore, the practice may slow your expansion.
Business Structure
If you’re operating as a sole proprietor, it may be a good time to think about switching to a limited liability company (LLC). This will help to reduce your personal liability, provide tax advantages, and lessen the amount of paperwork you have to trawl through during high-intensity periods. In order to form an LLC, it makes the most sense to use a formation service and save on lawyer fees. These experts can also help you to navigate your state’s regulations.
Reassess Your Budget
When you’re on the cusp of a recession, it’s a smart idea to review your budget. This means looking closely at your expenses and seeking areas where you might reduce costs or renegotiate contracts. You have to be careful because you don’t want to restrict the operational ability of you and your team, but it might be necessary to cut out a few luxuries. To begin with, look again at recurring fees such as utility bills, software subscriptions, or workspaces.
Administration
If things get chaotic during a recession, it pays (literally) to be organized. This means keeping on top of your business and financial records. Online tools can help you to manage, organize, and store important documents and digitize any that are stored on paper. You may even want to collate your sensitive information into PDFs. If you need to combine PDFs so you have fewer files to keep track of, you can utilize a tool that lets you add pages to a PDF. This strategy makes it easier to manage your files and saves digital storage space.
No one looks forward to a recession, but preparing for its arrival is crucial. Make sure that you’re clearing debt, saving cash, reassessing your budget, and re-evaluating your business structure in anticipation. Your bottom line will thank you for it later.
The Livingston Parish Chamber of Commerce is equipped with lots of resources to help small businesses thrive. Take a look around our site today, and reach out for more on how we can help.
