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Preparing Your Business For a Downturn

September 25th 2019 | by Ron Zayas

The US economy has been expanding for 10 years. But as much as we hate to sound like pessimist, all good things eventually come to an end (and there are some signs that a slowdown has already begun).

No one likes to think of the worst happening. But in business, being prudent is always wise.

 

Is Your Business Ready?

Many people in business today have not been through a recession.

At 360, we have been around long enough to face good times and bad. We channeled that experience into a checklist for our clients to help them assess their exposure in the event of a downturn, and prepare accordingly.

The first question it asks is an obvious one: How vulnerable is your business? Lower tides, like rising tides, affect all boats, but some businesses will get hit harder than others during a recession.

Download the checklist for a more comprehensive assessment, but here are the most common attributes that make a business reel from an economic slowdown:

  1. You have a lot of debt. Debt doesn’t give you room to maneuver if things go south. But remember the difference between credit and debt: credit is your access to money (which you need during a recession) and debt is how much credit you have actually used. If you have an untapped credit line, that’s good; if you have your business credit and credit cards maxed out, now is the time to start paying that down.
  2. Your business has one or two accounts that make up more than 30% of sales. Even if those accounts seem solid, businesses of all types tighten their belts during a recession. A sudden slowdown in their expenditures can create havoc on your revenues.
  3. The revenue of your business depends on a steady flow of new customers, or requires that your existing customers continue to grow at a rapid pace. The more new clients you need, the more likely a recession will hurt your top and bottom lines.
  4. Your accounts receivables are starting to stretch out over more time. This is a sign that your clients may already be heading into a weaker stance. Not all companies go into — or out of — a recession at the same pace. In fact, by the time the government officially declares a recession, everyone else is already aware of it.
  5. Your customers are in the manufacturing field, or are global companies. Manufacturing continues to get hit hard in the US and we have recently seen declines in that sector. Businesses that are global may also struggle because of geopolitical instability, tariffs and the fact that our global trading partners often lead the US into a recession. Companies focused on electronics or consumer products may be especially vulnerable, as are you if your business caters to them.

There are other factors, and you can check them out by downloading our Recession Checklist. But if you feel you may be susceptible to a downturn, here are some ideas to get you and your business through it:

  1. Clean up your house now. Pay down debt as much as you can. While debt gets cheaper during a recession (because interest rates tend to fall), there is not a lot of room today to lower rates, which makes a downturn that much more concerning.
  2. Bulk up on your credit. If your company is doing well, try increasing credit lines or applying for new credit, especially at a variable rate. You don’t have to turn your credit lines into debt, but it is nice to have a cushion to rely on if you need it, and it is much easier to get a loan in good times than in bad.
  3. Cash is king, so save money. Just remember that cash often gets taxed, so talk to your tax professional about savings vs. having a solid credit line.
  4. Diversify. If your clients are in one industry, try looking to other industries for new clients. Focus on those who tend to have cash-rich businesses and are less consumer-focused. Larger companies and companies that have been around longer tend to know how to weather and even thrive during a recession. Because many things get cheaper in a recession (think advertising, marketing costs and labor) some businesses look to expand their market share and marketing activities when others retreat. Also, since some parts of the country have dramatically different micro-economies, reaching out of your business area can help.
  5. Ask your clients about their plans for the future. That can help you identify if they have problems that may become your problems.

In the modern, interconnected world of economics, bull and bear markets, expansions, bubbles and recessions will all come in go. Companies weather these changes and get through them. You can, too. If you need additional help, reach out to us, we can help you develop marketing plans and implement technologies that increase sales and profits.

Download our Recession Checklist

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