Ep #27: How to Recession Proof Your Business

Introduction

"Hello and welcome back to Business Exit Success. We are talking about how we can recession-proof our business. How can we best position ourselves and our business to be prepared for when times get hard in the economy, when inflation is on the rise, the cost of everything is going up, and it’s hard to keep good employees, these are the times as business owners we should be preparing for so when they do happen we can continue to meet payroll, we can continue to pay ourselves nicely and take care of families, we can take care of our employees and continue adding value to our customers."

"So I’m going run through 8 ways we can recession-proof our business."

Have access to capital

"Make sure you have access to capital. So for any reason, if you get in a pinch and you are tight for money, you are able to get your hands on some form of liquidity. So try and develop a relationship with your bank. Seek out a business credit card."

"Network and keep in touch with your banker, with your loan officer, treat them like a client or a business partner. This is especially the case if they are a smaller bank, they will most likely be relationship based. If a loan officer can put a face to a name, the higher the chance they will remember you and provide you the help you need for your business."

Build a strong financial history

"What also helps you in this scenario is building a strong financial history. So make sure you are paying your bills on time and paying off your loans in a timely manner. If you have a strong track record, then you are more likely to get the financial help you need, when you need it."

"Have an emergency fund. And this goes for your personal finances and your business. The challenge with this one is separating the two." 

Separate personal finances and business finances

"For many of us business owners, our personal finances and business finances are entangled together. The last thing we want is when an unexpected personal expense occurs, we don’t want to be pulling that from our business account. And same goes vice versa, if an unexpected business expense comes up, we don’t want to pull it from our personal savings which are supposed to be there for ourselves or your family. For your personal finances, shoot to have 3-6 months of personal expenses in your checking or savings account. If you have only one source of income, you should have 6 months saved in cash. If you are married and your spouse is working and also has an income stream, have 3 months of expenses saved up between the both of you. Your personal savings should cover things like your rent or mortgage, car payments, insurance, utilities, food, and gas, it should cover all the essential items you need on a month-to-month basis."

"For your business accounts, I like to recommend at least 6 months but if you can get 12 month’s worth of expenses saved up in a business checking or savings account, that is a great spot to be in. This should cover expenses including payroll, inventory, utilities, rent, insurance, and operating expenses. And its purpose is to be there for when unexpected costs come up, or maybe your business has a seasonal cashflow cycle so having that cushion can get you through the slow months."

Have a strong cash position in your business

"Having a strong cash position in your business can position you for when an opportunity unexpectedly comes up. Maybe you come across a highly qualified candidate to come on board, and you can double down on your marketing, whatever the opportunity is, having that dry powder will allow you to take advantage of it."

"When you build up your business savings it's also a great way to stay in front of paying your tax estimates throughout the year. Because when you delay paying your estimates you start to accumulate tax debt and you don’t want to go down the road of drumming up tax penalties and end up paying more than you have to, to the IRS. I have a short PDF I will include it in the show notes – it’s a walkthrough on how you can pay your estimated tax payments online. Really useful as opposed to mailing in checks. You don’t even need to create a username or password on the IRS website to do this so just go to beyondyourexitwm.com/podcast episode 27 and you can find the link."

Manage your cash flow

"Take care of your cash flow. Don’t over-invest in times of uncertainty. But if there is an opportunity, make sure you have your business savings built up so you have some dry powder to work with.  Also, take the time to review your invoices and your receivables very carefully. When you do this you’ll discover which of your customers or clients are consistently making late payments. Take care of these and resolve them early on and BEFORE they become a serious problem."

Evaluate your business expenses

"Evaluate your expenses. Do your vendors have other pricing options? Are there costs you can potentially eliminate? Review your insurance. So many business owners are overpaying for insurance. Particularly life insurance because they’ve been sold on an expensive product as opposed to a solution. So pull out your policies, take a look at them, and shop around. Many insurance companies have improved their underwriting process and if you’re reasonably healthy it could be worth your time to potentially save hundreds or thousands of dollars a month."

How to niche down your business

"Niche down. When you cater so much to a specific client or customer your business becomes the essential go-to for it. Niching down truly requires mastering the niche and having a focus as opposed to being a master of all trades and you end up spreading yourself too thin. Here are 5 ways you can niche down:

Industry (Tech, Media)

Demographic (45-50 year-olds)

Location (Austin Texas, San Diego, CA)

Problem (Burnout, Saving Money)

Interests (People who like to workout, Runners, Painters)

Review your inventory process

"Review your inventory process. Are you ordering excessive quantities of certain items and you still end up with half of it a year later? Are you able to make adjustments so you’re not overspending in the future? Could you perhaps buy certain products at better prices from another vendor or supplier? If you end up having inventory that’s outdated and not useful, simply write it off and dispose of it. You could also donate it. If your inventory is still useful there is someone out there or an organization that could potentially use it. I’m a QuickBooks user and I found a  great article on this titled, 10 Ways to Deal with Last Year’s Inventory. It’s a good read if you are consistently buying inventory for your business. I’ll put a link to it in the show notes."

Review your tech stack and tech solutions for your business

"Review your tech stack or whatever tech solutions you are using in your business. How often are you using each one? Is it adding value to your business, is it adding value to your process on how you service your customers? Is it contributing to your bottom line? If it is not, get rid of it. Or if it is contributing to your bottom line but it’s expensive, is there a better alternative? "

"Don’t forget about your employees and prioritize employee retention. In times of uncertainty, like now, when the cost just to buy food for your family is expensive, it’s affecting your employees and their families too. Stay in good communication with them and their needs because if they are struggling enough, and they don’t feel they can succeed working at your business, They don’t feel supported or appreciated, they’ll search for another opportunity and will leave."

"So I hope those were helpful, Again you can find the resources I mentioned at beyondyourexitwm.com/podcast and this is episode 27."