Recession Survival Guide for Businesses
By Patrick Astre
would think there wouldn’t be a need for recession planning. We
should see them coming. The constant sine wave of business cycles
makes recessions as inevitable as surging booms. Of course, if you
put 10 economists in one room, we’ll get 11 opinions, so the exact
timing of recessions is darn near impossible to predict. Still,
like hurricanes, recessions come along once in a while, and
occasionally one will wreak havoc on the shoreline.
the great business models that can teach how to weather recessions
is seasonal retailers. For instance, there’s a small business around
the corner that sells swimming pools and backyard leisure items in
the summer. Yet, when seasons change their business needs, you can
bet the farm that their display changes to snow blowers, wood stoves
and chainsaws in September, and Christmas trees in December.
Recessions come as regularly as seasons, just not as often.
Businesses and consumers alike should be prepared for them just as
they prepare for winter. So here’s a guide for businesses to handle
recessions and the inevitable boom that follows.
basics: When you get right down to it, handling recessions, or
any kind of business slowdown, consists of three things:
Cutting expenses much
as possible without affecting sales and income
Maintaining sales and
income as much as possible in the current environment
Having and properly
using an emergency fund to help weather the storm
Recognizing the basics and actually implementing a plan can be two
different things. Here’s how to start:
Understand the financial ebb and flow of your business. You
should be using a computerized accounting system. Quickbooks
is the premier system right now. If you have an accountant, they’re
probably using it. (If you’re using an old paper system and doing
your own bookkeeping, your first task is to change immediately. Buy
the software and take a course in using it. They are available
online, as well as various classroom settings).
primary tools are found in the company financials, sales and
customers sections. You will use three primary Quickbooks’ tools:
Profit & Loss
Statements (P&L). The program will allow you to see all your
expenses and income – categorized – and tell you if you’ve made
a profit or suffered a loss during that time period. Run the
P&L as far back as you can, five or 10 years if possible. Do it
for each quarter and annually. You will be able to tell what
period of time is most profitable, when expenses rise, what the
expenses are, when income increases, and in what categories.
and Representatives. If you have a sales force, the Sales
section of Quickbooks shows sales details by individual reps.
This will tell you who’s doing the best job and who needs
Customers and invoices. The Customers
& Receivables section of Quickbooks will show you open invoices
and accounts receivables aging details. Now you will know how
long it takes you to get paid and how many outstanding invoices
there are for each period. This is crucial since the amount of
time it takes you to collect has a direct impact on your cash
you have this information at your fingertips, you’re ready to begin
recession-proofing your business.
expenses. Actually, a wise businessperson should be doing this all
the time. The trick is not to be like the butcher who backed into
his meat grinder and got a little behind in his work. Trim only the
fat, and beware of cutting things that bring in revenue. The first
step is to scrutinize the expenses part of your P & L statement.
Take steps to reduce obvious expenses that can be lowered. Energy
costs through efficient windows or insulation, superfluous
purchases, eliminating inventory or services that aren’t profitable,
that’s the obvious. The rest is more difficult, especially in these
Advertising: Be very careful to
differentiate between crucial advertising that bring in business
and that which doesn’t. Ask customers how they heard of you.
Offer coupons that must be brought in so you know the source of
the customer. Record the answers and use it to manage your
Sales representatives: Use your sales
records to rank your reps and assign territories. Know ahead who
needs to improve their performance. Help them increase their
achievements if you can, cut them if you must. In a recession,
the survival of your business may be at stakes.
Employees: This is another tough row
to hoe. Laying off people is the kind of thing that makes you
wish you hadn’t gone into business. Examine closely the
functions of each employee. In a recession you may be forced to
retain only key employees. Be ready, have the decisions made
ahead of time and hope the day never happens. Prepare yourself
to carry it out if the time comes.
your cash flow in good times. Business is good, money pours in,
why get crazy, right? So collections are behind and expenses are too
high, profits are still good, so why bother? The preceding words are
the main reasons why businesses fail during recessions. There are
many dangers of financial complacency, and when economic slowdowns
occur the business is blindsided. Collections are abominably slow,
expenses are high, and it’s a scramble to get rid of bad habits
developed during economic booms. Pretty soon the “Going Out of
Business” sign appears on the door. Straighten it all out during the
good times, just when you think you don’t need to – because you
really, really do need to.
up an emergency fund. This is crucial. If you do nothing else,
at least do this. Start putting 10 percent of gross in a ready,
liquid fund tied to your business. Use a good steady bond fund like
Vanguard Intermediate-Term Tax Free Municipal Fund, or ING Direct.
Make believe this is another expense, and it is – it’s an expense
that might save your business some day. Keep going until you have
at least six months worth of your business’ gross income. In
addition, have a ready source of credit in case a deep recession
comes along and you need more cash. Be a miser with your expenses
and a hog with your savings. Put it away till it hurts. It’ll pull
your bacon out of the fire in a recession.
you have it, folks – a basic, commonsense guide to
recession-proofing your business. In reality, doing this will
improve every aspect of the business and boost your bottom line.
It’s just like the guy who painfully banged his head against a
wall. When he was asked why he does this, he replied, “Because it
feels good when I stop.”
feel good when you get this done, and you’ll sail through the next
recession with a smile.
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