11 tips to prepare your business for a recession

TriNet Team 

About 81% of small businesses anticipate a recession this year as the Federal Reserve continues to raise interest rates to attempt to combat inflation. This is a scary thought for many small and medium-sized sized businesses (SMBs), especially as most were only just beginning to recover from the recession caused by the COVID-19 pandemic. Unfortunately, these macroeconomic ebbs and flows of the economy are a natural part of life and difficult to control from an organizational standpoint. To help you prepare for the challenges of a recession, here are some tips on how to prepare for a recession. 

While it may be possible to predict whether a recession is going to occur, it’s not possible to control whether it happens. Therefore, the best way to increase the likelihood that your business will continue to face success regardless of the state of the economy is to prepare far enough in advance.  

1. Secure financing before you need it 

The course of a recession could mean small businesses need to ask for financial help, so try to get ahead of the curve by securing financing before you need it. You’re much more likely to be approved for a business line of credit when your company profits are doing well, and your interest rate will be lower. If you apply in the middle of a recession, it will be harder to qualify so it’s important to pursue in advance. 

2. Protect your cash flow 

Eighty-two percent of businesses fail due to cash flow mismanagement. So one of the most important aspects of surviving a recession is managing your cash flow carefully by following up on past-due invoices from clients and creating an emergency savings fund. It’s also key to keep the equivalent of three to six months of expenses in an emergency cash fund. 

Another way to protect your cash flow is to manage your receivables. Make sure to have legal contracts regarding late fees to reduce the risk of outstanding balances,.  and consider collecting deposits for high-paying jobs upfront to reduce the risk of non-payment. While it might seem fine to let loyal clients get a few months behind on invoice payments, staying up-to-date helps you prepare and avoid operating at a loss. 

3. Reduce unnecessary expenses 

One of the best ways to prepare your business for a recession is to carefully examine your costs and determine how to increase the variability of expenses or decrease overall expenses. Look for any areas where business expenses can be reduced and try to do this as early as possible. The more time that passes with your SMB operating at increased efficiency, the more money you’ll save and the more prepared you’ll be in case of a lasting recession.  Transitioning to a professional employer organization (PEO) or human capital management (HCM) platform can help you increase the variability while cutting unnecessary expenditures can help you decrease overhead costs. 

4. Take a serious look at staffing 

Look into your staffing situation to make sure you have the right leaders in place to focus on the goals and priorities of the company. Do what you can to retain your top talent and inquire about your team’s productivity to make sure they’re prepared to help advance your goals. Opportunities to outsource and make your operation run more efficiently from a cost perspective, particularly with a solution that provides HR consulting expertise, can help you scale wisely to mitigate the need for downsizing. In addition to working with a PEO, there are several automation options SMBs can explore to get the guidance they need. 

5. Turn to employees for input 

Employees are heavily integrated into the day-to-day operations of your business. This means they often have great ideas regarding opportunities to increase savings and reduce business costs. Consider turning to them for their input on effective savings, as well as ideas for fueling growth for the future. Not only can this lead to strong ideas for surviving a recession, but it may also help your employees feel valued within your organization. 

Read the remaining six steps next week!