16 Practical Steps To Help Your Business Weather An Economic Recession

Many business owners have undergone a variety of challenges during 2020 and 2021, as the Covid-19 pandemic has wreaked havoc on the economy. Now, some experts are seeing signs of a recession on the horizon. Those businesses that are still standing may need to adjust their plans to prepare for the long-term financial impact of a prolonged downturn.

A recession can be difficult to weather, but it doesn’t have to spell disaster for business owners. Below, 16 members of Forbes Finance Council share some practical steps leaders can take now to shore up their businesses and make it through tough economic times.

Members of Forbes Finance Council share steps businesses can take now to better weather a potential economic recession.

Photos courtesy of the individual members.

1. Conduct A Wellness Check

Leaders can conduct a wellness check by doing a deep dive into their finances. By building cash reserves and planning for expenditures and future payments, leaders can identify opportunities to trim spending. This may require a rebalancing of business priorities or an adjustment to strategy to free up cash flow and build cash reserves that can help leaders navigate future economic challenges. – Jenn Flynn, Small Business Bank at Capital One

2. Create A Five-Year Plan

Forecasting is very important in these instances. I recommend looking as far forward as can be done along with subsequent planning. I’d even suggest creating a five-year plan. Be able to quantify your core operating costs and the real cash that will come in monthly, quarterly and yearly, as well as how large a contraction you can sustain based on net cash. – Damaris Herron-Watkins, A Better Chance Inc.


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3. Avoid Long-Term Agreements

Avoid long-term agreements, even if it is to lock in favorable prices. Flexibility and the ability to move quickly will serve you better than price certainty, especially if you need to pivot to different offerings or lower production. Locked-in prices can come with purchase requirements, which might be irrelevant and could cause unwanted expenditure in a rapidly changing market. – Aaron Spool, Eventus Advisory Group, LLC

4. Capitalize Now On Cheap Credit

Global supply chain disruptions and energy crises are expected to turn into food crises in 2022, which may lead to higher-than-expected inflation. Entrepreneurs should try to increase their debt burden to an optimal level (but don’t get over-levered) to capitalize on cheap credit. Make upfront capital expenditure investments to make sure a revaluation of your hard assets will reflect the higher inflation rate. – Alexey Posternak, MTS AI

5. Keep Your Coffers Full

Recession or not, business owners need to keep full coffers to weather storms. That can be in the form of cash and investments or access to credit. Analyze any reinvestment strategies into the business, understand your return on revenue and have a strategy for what to do if your business is cut in half. Planning for the best is easy; planning for the worst is where the real money gets made. – Robert Mascia, Green Ridge Wealth Planning

6. Establish A Bottom-Line Break-Even Number

Business owners should surely expect some economic storms ahead, including eventual rising interest rates as well as possibly higher taxes to offset a major deficit. It would be practical to shore up a clear bottom-line break-even number so your business is sustainable through harder times. It would be very wise to consider debt consolidation with fixed interest rates of any current business debts. – Matt Dixon, TruNorth Advisors

7. Prepare For Hiring Opportunities In The Recession

It’s important to think long-term. Labor is in short supply, and companies are struggling to find stars. Prepare now to quickly pivot and scale up when the inevitable recessionary period of the economic cycle begins. Great opportunities may exist to hire star people in a recessionary environment—especially if it occurs immediately following a labor shortage. – Jamie Ellis, Katz, Sapper & Miller

8. Create A War Chest To Grab Market Share

Create a plan and a war chest today. Use a future recession as an opportunity to take more market share, acquire capabilities and increase your pool of high-demand talent in order to accelerate while others are forced to retrench. – Edward Dellheim, Point B

9. Get A Handle On Your Payroll Expenses

Planning for a slowdown and a downturn in sales, as well as planning for wage cost increases and compression due to inflation and minimum wage effects, is important to ensure a company is well-positioned to balance costs to slower revenue. Typically, outside of the cost of goods, payroll represents a business’ largest expense (except in very large industry companies), so it should be managed to relieve profit issues. – Steve Babick, HSI Inc.

10. Cross-Train Your Staff

A practical step any entrepreneur can take to help recession-proof their business is to cross-train their staff. Cross-training may seem like simple “one plus one” math, but it ultimately provides an exponential return. It empowers employees to better understand each other and really transition from individual players to becoming a team. – Eric Couch, ProVision Brokerage, LLC

11. Take Advantage Of Market Mispricing

Recessions provide an opportunity for company owners to take advantage of market mispricing by finding and executing on opportunities that will blossom in the next recovery. Having a strong financial position and liquidity going into a recession will allow an investor or business owner to execute on the opportunity and grow their business when others may be running scared. – John Ward, Bridge Investment Group

12. Start Banking Money And Eliminating Debt

Since a recession brings fewer sales and less cash to support company operations, businesses must have robust financial management strategies that include banking enough money to fund their needs and survive an economic downturn. This includes debt management, because the more debt a company has, the more vulnerable it is during a recession. – Lilit Davtyan, Phonexa Holdings, LLC

13. Evaluate Current Business Debts For Refinancing

Business owners should be evaluating their business debts right now and refinancing them as soon as possible before interest rates inevitably head higher. Refinancing via a Small Business Administration loan will provide better terms and longer repayment periods, dramatically improving monthly cash flow to help a business weather a recession. – Christopher Hurn, Fountainhead Commercial Capital

14. Anticipate Potential Scenarios And Build Reserves To Cover Payroll

Proactivity is paramount. It’s critical to anticipate potential scenarios that can affect every aspect of your business. From a financial perspective, build enough cash reserves to cover three to six months of payroll, and apply a lean approach to all other expenses. If you have a good relationship with your bank, meet with them and ask about other liquidity options in the event cash reserves get depleted. – Ashley Harris, Boys & Girls Clubs of Central Orange Coast

15. Secure A Line Of Credit Or Raise Debt

Interest rates are still low, and capital is abundant, such that many small companies can easily access and secure funds for a rainy day. Remember, banks don’t lend when you actually need the money. Also, build out a detailed, bottoms-up 18-month budget. It will help you understand where you have flexibility in your cost structure. – Jay Jung, Embarc Advisors

16. Ensure You Have Ample Liquidity

The key to being prepared for a potential market downturn—whether it meets the technical definition of a recession or not—is ample liquidity. What is “ample”? A good rule of thumb is 12 to 18 months’ worth. We saw this at the start of the pandemic: Firms that had ample liquidity were in a far better position to navigate the economic uncertainty than those that did not. – Omar Choucair, Trintech